Fitch: North American Property/Casualty Insurers Report Consistent Operating Profitability in 2014

North American Property/Casualty (re)insurers' operating performance in 2014 remained favorable, according to a new Fitch Ratings report. The strong results were largely due to modest catastrophe-related losses during the year and benefits from premium rate increases across many primary insurance segments.

The group of 48 companies' aggregate operating earnings increased by 5.0% to $51.8 billion in 2014. However, operating return on equity for the group was essentially flat at 8.5% from 8.6% in the prior year. Twenty-five companies in the group reported a double-digit operating ROE in 2014. Operating results were particularly strong among the reinsurers and personal lines writers.

The calendar-year combined ratio for the aggregate group remained flat in 2014 relative to the prior year, representing a significant underwriting gain. The combined ratio rose by less than 0.1 percentage points to 93.4%. Only six companies had a 2014 combined ratio above 100%. The 2014 accident-year loss ratio (excluding catastrophe losses) improved by 0.4 points.

Underwriting results were affected by significant winter storm activity that occurred across the U.S., including the Mid-Atlantic and southern states. In 2014, U.S. catastrophe losses added 2.7% to the overall group's combined ratio, up modestly from 2.8% in the prior year. The impact from catastrophe activity was most heavily endured by the regional and personal lines companies that experienced considerably increased cat loss activity over the prior-year period. Reinsurer catastrophe experience was less than half of the prior period.

Prior-period loss reserve releases continue to boost underwriting performance, representing approximately 2.2% of earned premium in 2014 versus 2.6% in the prior year. Fitch continues to believe that after recognizing significant reserve redundancies over the last five years, the P/C industry loss reserve position is gravitating towards adequate levels.

After nearly three consecutive years of premium rate increases in most primary market segments, price changes are more likely to trend flat to slightly negative going forward. U.S. primary lines are unlikely to experience abrupt premium rate declines in the near term in contrast to the more severe softening of the reinsurance market pricing. The reinsurer group reported a 1.9% increase in net written premium in 2014, relative to an increase of 5.6% for the other subsegments.