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U.S property/casualty insurers are expected to show a second straight year of underwriting profit in 2014 despite a slightly worse combined ratio and slowing premium growth, according to a new report from A.M. Best Co. Inc., the company said in a statement Tuesday.
This is possible because of core underwriting results and improved net written premiums.
Overall U.S. P/C insurers industry profits, however, are expected to decline 10.5% to $55.2 billion as the pressure on operating and net income combines with low investment yields to hamper results, Oldwick, New Jersey-based ratings agency A.M. Best said in the report.
The new report, “U.S. P/C Industry Expected to Produce 2nd Consecutive Underwriting Profit,” says the industry estimated combined ratio deteriorated 0.8 percentage points to 97.2 for 2014, from 96.4 in 2013.
At the same time, net premium written growth slipped to 3.9% in 2014 from 4.4% in both 2013 and 2012, said the Best report.
The property/casualty industry's capital base is expected to reach $710.6 billion at year-end 2014 and grow further to $724.9 billion by the end of 2015, increases of 6.2% and 2.0% respectively, said the report.
Also for 2015, Best projects the industry average combined ratio at 99.1%, marking a third straight year of underwriting profit for the first time since the 1970s, Best said.
Balancing the report's overall positive demeanor are Best's concerns about the adequacy of loss reserves for the commercial lines segment, growing competition from technological advances and “abundant” capital, and a “poor” investment environment.
As for the reinsurance sector, Best said it remains well capitalized but will be hurt by “compressed investment returns and underwriting margins” which will hit profitability and “ultimately weigh on financial strength.” New forms of competition will also bear on the U.S and global reinsurance markets, Best added.