Direct premium written (DPW) for property/casualty insurance companies continues to increase, albeit gradually. At year-end 2013, nearly $545 billion of DPW was reported, a record high for the industry. For 2013, total DPW for all P/C insurers aggregately increased 4.1 percent over 2012, an increase of nearly $22 billion. Through the second quarter of 2014, the insurance industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased 5.2 percent over 2013.
For the six months ending June 30, 2014, P/C companies comprising the Top 25 insurers in terms of DPW leveraged their experience and increased their DPW 13.1 percent over the first six months of 2013. This continues the Top 25 insurers’ impressive display of premium growth and financial stability. The Top 25 accounted for over 45 percent of the growth in the P/C insurance industry’s DPW. The remainder of the industry reported an increase in DPW of approximately 3.5 percent, or $7.5 billion year over year.
It is important to note that while increasing DPW, P/C companies have aggregately maintained a sufficient level of policyholders’ surplus (PHS). One measure that indicates P/C companies are conservatively leveraged is the DPW to PHS ratio. An insurer’s DPW to PHS ratio is indicative of its premium leverage on a direct basis, without considering of the effect of reinsurance. Since 2010, this ratio for P/C companies has remained stable at approximately 70 percent.
Although the market continues to exhibit signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market in the near future. More importantly, it is possible that the double-digit premium growth experienced in the historical hard market cycles may have created unrealistic premium growth expectations for this current recovery.
It is more realistic that expectations should relate to gradual, stable growth. There is always a fair amount of uncertainty in making projections based on second quarter data, but if the industry holds to its 10 year historical pattern, growth in 2014 would again result in the highest level of year-end DPW ever reported by the P/C industry.
Topics Trends Carriers Pricing Trends Market Property Casualty
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