OLDWICK, N.J.--(BUSINESS WIRE)--The U.S. property/casualty posted its second consecutive year of profitable underwriting results in 2014, according to a new special report from A.M. Best.
Surplus for this sector increased by USD 21.9 billion and reached another record level at year-end 2014. The Best’s Special Report, titled “Profits Continue for U.S. P/C Industry, Supporting Record Level of Policyholders’ Surplus Level,” also notes the net premiums written grew 4.4% to USD 501.2 billion in 2014 compared with the prior-year period. Last year marked the first time since 2009 that the pace of premium growth exceeded the prior year’s rate of growth.
According to the report, net premium growth remains solid, but companies have reported more challenging conditions, particularly for new business. While premium growth slowed for most lines of business in 2014, inland marine, homeowners and commercial auto liability posted large increases.
After an unusually moderate level of catastrophe and non-catastrophe weather-related claims in 2013, the industry returned to a more normal level of activity in 2014. For the industry overall, catastrophe losses added 4.0 points to the combined ratio in 2014, up from 2013’s 3.5 points. Overall, however, core underwriting results remained favorable, deteriorating just 0.5 points to a combined ratio of 92.7, which is partially attributable to an increase in non-catastrophe weather losses and an increase in fire losses reported in the first half of the year.
The persistent low interest rate environment continues to put pressure on property/casualty insurers’ results, although net investment income increased in 2014. The increase relates to a dividend of approximately USD 7 billion in shares of non-financial affiliates paid to National Indemnity Company (NICO) by GEICO. As a result of this payment, the industry’s net investment income grew 9.0% in 2014, to USD 55.4 billion. However, had the dividends paid to NICO been in line with their more recent levels, the industry’s net investment income would have declined to USD 48.4 billion, a decrease of 4.9%.
Companies that anticipate a spike in rates have been increasing liquidity, with lower investment income in the short term in exchange for lower duration that affords greater flexibility to reallocate the portfolio if rates move up quickly. Companies that tried this strategy in 2013 and 2014 have not been rewarded.
For a full copy of this special report, please visit: http://www3.ambest.com/bestweek/purchase.asp?record_code=236301.
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