Earnings for the property and casualty insurance industry have dropped sharply through the first nine months of 2011, says Fitch Ratings in a new report.
The rating agency says that its analysis of the results of a group of 47 insurers “highlights the depths to which industry profitability has sunk due to a devastating year for natural catastrophe-related losses and chronic underpricing across nearly all industry product segments.”
It says that the group’s operating earnings declined by 67% relative to the prior year. Operating return on average equity, which excludes realized gains and losses from earnings, fell to 2.2% in the first nine months of 2011 from 7.0% in the prior year. And, only three companies in the group reported an annualized operating ROAE above 10% so far in 2011, while 20 companies have a year-to-date operating loss.
“While there are some encouraging signs in the market from recent pricing trends and stronger growth in 2011 written premium volume for (re)insurers, the current anemic profit results reveal that considerably more premium rate improvement is necessary for a return to consistent double-digit returns on equity for the broader P&C sector,” it says.
Fitch also notes that as profitability for the industry declines, the variation in performance across individual companies is widening, too. Companies with the worst performance so far in 2011 include regional insurers and reinsurance companies, while organizations that continue to generate underwriting profits and better returns on capital are specialty personal auto writers and specialty casualty writers that are not exposed to natural catastrophe events.