Positive News for US Property-Casualty Re/insurers from Fitch Ratings

Midyear results for both US property-casualty (P&C) insurers and reinsurers show sectors on the mend following a trying 2017, according to Fitch Ratings in a new report.

Operating performance moderately improved for P&C re/insurers during the first half of the year thanks to improved core loss ratios, lower catastrophe losses, and lower taxes along with favorable movement in loss reserves. The group operating return climbed to 8.0 percent, up from 6.8 percent in the prior year. The drop in catastrophe losses was a particular breath of fresh air after both P&C insurers and reinsurers endured harsh losses following the major storms of last year.

"There was considerable growth in net written premiums during the first 6 months of 2018 with double-digit increases in the personal, Florida homeowners, and reinsurer segments that were most directly affected by the catastrophic events of 2017," said director Christopher Grimes. "Florida insurers especially benefited from a decline in nonnamed storm catastrophe losses which did not recur at the same level as the first half of 2017."

The first half of 2018 also saw strong underwriting results with the group combined ratio dropping to 94.5 percent, down 2.0 points from the prior year. Calendar year underwriting results improved across each of the primary insurance subsets in the first half of 2018, with the largest improvement emanating from personal lines and Florida specialist segments. Both groups benefited from price increases and favorable current accident year loss ratios.

Prior-period loss reserve releases also provided a boost to underwriting performance, representing approximately 1.9 percent of earned premium in the first half of 2018 versus 1.4 percent in the prior year. Buoying the favorable results were the personal and commercial auto lines in reference to the most recent accident years, with numerous companies reporting stabilization in frequency trends while elevated severity trends generally persisted.

Net earnings for the group benefited from the recently enacted US Tax Cut and Jobs Act, which lowered the US corporate income tax rate and led to sizable declines in effective tax rates reported by many companies in the group. The group's overall effective tax rate declined to 17.4 percent in the first half of 2018, compared with 24.5 percent in the first half of 2017.