[February 11, 2013]

A.M. Best Special Report: Catastrophes Drive Underwriting Loss in 2012; Better Results Expected in 2013

Through late October 2012, the U.S. property/casualty (P/C) industry was on track to record a significant improvement in financial results following 2011's substantial underwriting loss. Hurdles continued on the investment front with interest rates expected to remain low for an extended period. Despite this, a steadily firming rate environment, stabilized economy with an improving-albeit still high-unemployment rate, and a much lower level of weather-related losses brought the industry, at September 30, 2012, to a near break-even combined ratio of 100.1 with net income more than twice its 2011 level, according to a newly released special report from A.M. Best Co.

The October 29, 2012 arrival of what is likely to become the second costliest U.S. natural disaster-in terms of insured losses after 2005's Hurricane Katrina-means that 2012 will be remembered as the year of Superstorm Sandy. The impact has been apparent on income statements throughout the P/C industry, with the industry's underwriting loss increasing $26 billion and net income deteriorating $10 billion during the fourth quarter, based on A.M. Best's estimates of full year 2012 results.

Sandy's impact notwithstanding, several signs point to improvedresults in 2013. Net premiums written continue to increase, as does policyholders' surplus. The pricing environment is expected to improve in 2013, although rate increases may be smaller in magnitude. While the continuing sluggish macroeconomic environment, persistently low investment yields and the current loss reserve position of the industry will present challenges, A.M. Best believes the industry overall is sufficiently well-capitalized to overcome them.

The personal lines segment has maintained a stable outlook. While volatility from weather-related events is expected to continue to impact the property lines, the automobile portion of the segment remains generally stable.

The commercial lines segment, however, will still retain its negative outlook in 2013. Insurers are still grappling with competitive market conditions, less favorable loss reserve development, sluggish economic growth and depressed investment yields; and these factors will most likely result in more negative rating actions than positive rating actions during this year.

The reinsurance sector maintained its stable outlook supported by continued strong risk-adjusted capitalization, judicious enterprise risk-management practices and a relatively stable pricing environment across a broad array of business classes. These strengths should help sustain reinsurers' overall financial position over the longer term given uncertain global macroeconomic conditions.

To access the full complimentary report, please visit http://www3.ambest.com/bestweek/purchase.asp record_code=209108.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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