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Property/casualty insurers see mixed results

Light catastrophe losses a boon, but static pricing remains a concern


Commercial property/casualty insurers posted mixed first-half results amid light catastrophe losses while pricing in many cases remains flat.

Though some rates are increasing slightly, experts say growing competition could add pricing pressure and hurt insurers' performance in the future.

“Results for the first six months were very much on par with the results we saw the first six months of last year,” said Chris Grimes, a director at Fitch Ratings Inc. in Chicago. “Overall, results were pretty strong.”

For the 10 largest commercial insurers, net written premiums grew 1.7%, to a cumulative $81.17 billion, in the first six months of the year, with only American International Group Inc. and CNA Financial Corp. reporting declines (see chart).

As for net income, half gained ground on last year and half lost ground. But the two insurers reporting the greatest increases profited from special circumstances.

XL Group P.L.C. swung to $951 million in net income for the first six months of the year, from a $24 million loss in the 2014 period, in large part because of its acquisition of Catlin Group Ltd. this year.

The Hartford Financial Services Group Inc. posted an $880 million first-half 2015 profit, up from $28 million in the 2014 period, as Hartford rebounded from a $637 million loss from the sale of its Japanese annuity business in the second quarter of 2014.

On the other side of the equation, W.R. Berkley Corp.'s net income fell 31.1% from that of the 2014 period because of lower investment gains and higher expenses. Liberty Mutual Insurance Co.'s net income fell 19.2% because of currency volatility, higher catastrophe losses and ongoing energy market pressures.

Analysts generally liked what they saw.

Insurers posted an “overall good half with some signs of weakness beginning to show,” said Mark Dwelle, director of insurance equity research at RBC Capital Markets, a unit of RBC Dominion Securities Inc. in Richmond, Virginia. He said there were some instances of margin pressure, slowing top-line growth due to pricing pressure and isolated reserving issues.

“It was a fairly good six months, particularly given that we have a deteriorating market environment,” said Paul Newsome, managing director at Sandler O'Neill L.P. in Chicago.

“Every quarter, it seems like the competition is getting more serious,” Mr. Newsome said. “But we've had really favorable weather and relatively positive underlying claim cost inflation that has helped keep the earnings in positive territory for the first half of the year.”

Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore, was slightly more negative.

The six month performance was “incrementally less positive, but not much worse than that,” he said.

“Most companies are reporting some areas that are still seeing rate increases, and the rate decreases outside of property are certainly reasonable,” Mr. Shields said. “And the reserve release story continues to chug along.”

But looking ahead, pricing remains a concern.

While the first-half results were generally “OK,” said Cliff Gallant, an analyst at Nomura Securities International Inc. in San Francisco, “I think industry observers are feeling a bit nervous.”

“It's a very competitive environment,” said Mr. Gallant. “With that kind of competition, we're continuing to see some pressure on pricing. Even if pricing is flat, it's falling behind loss cost results. We might feel good about current results, but we're worried about what might come.”

“The pricing environment needs be watched very closely,” Mr. Newsome said. “It looks like pricing is pretty flat right now, and the question is will it follow the historic pattern and become negative?”

Looking ahead, Mr. Gallant cited several situations that could change the market. An event such as an earthquake along the New Madrid fault, which could affect major metropolitan areas such as St. Louis and Memphis, Tennessee, could turn the market, he said.

“There's always the surprise liability,” such as some sort of cyber exposure that causes more damage than expected, he said. Such a situation could bring about a new perception of risk that could drive market change as well, he said.