Direct premium written (DPW) for property/casualty insurance companies continues to increase 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 increased 4.1 percent over 2012, an increase of nearly $22 billion. Through Q3 2014, the industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased 4.6 percent over DPW reported through Q3 2013.
For the nine months ending Sept. 30, 2014, P/C companies comprising the top 25 insurers in terms of DPW growth increased their DPW 13.2 percent over the first nine months of 2013. This continues the top 25 insurers’ impressive display of premium growth and financial stability. The top 25 accounted for nearly 50 percent of the growth in the P/C industry’s DPW. The remainder of the industry reported an increase in DPW of 2.8 percent, or $9.3 billion year-over-year.
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. A DPW-to-PHS ratio is indicative of premium leverage on a direct basis, without considering the effect of reinsurance. Since 2010, this ratio for P/C companies has been stable at approximately 70 percent.
Although the market shows signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market in the near future. 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 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 third-quarter data, but if the industry holds to its 10-year historical pattern, growth in 2014 would result in the highest level of year-end DPW ever reported by the P/C industry.
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