Fiddich Review Centre
Alternative Investment

Fitch notes marginal improvement in operating earnings for North American P&C

Fitch Ratings has said that the North American property/casualty (P/C) insurance GAAP results for H1 2022 showed marginal operating earnings improvement, with sharp deterioration in personal lines performance amid rising inflation and accelerating personal auto loss-cost trends that was more than offset by strong underwriting improvement across most commercial lines due to the ongoing favourable rate environment.

fitch-ratings-logoThe firm said that H1 2022 GAAP results reveal considerable premium growth, with rate increases across nearly every business line in response to inflation and rising loss costs.

Near-term claims trends are likely to be affected by continued severity issues tied to higher inflation, currently most pronounced in property and auto physical damage lines.

The aggregate group combined ratio increased to 94.5% from 93.4% in H1 2021 as material underwriting performance deterioration in personal auto weighed heavily on overall group results.

Five of the six personal lines insurers reported a current accident-year combined ratio above 100% for H1 2022. Insurers are taking more aggressive pricing and underwriting actions in response to recent results, but a recovery in results may be slow to materialize.

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However, eight of the 10 companies in the diversified commercial insurer group reported improvement in calendar-year combined ratios, driven by the favourable rate environment. The commercial diversified segment combined ratio improved to 93.6% from 94.2% YoY.

Three plus years of hardening premium rates in commercial lines promoted favourable premium growth and underwriting profit improvement in H1 2022.

While rising interest rates reduce fixed-income valuations in the short term, insurers’ fixed-income yields stand to benefit from reinvesting cash flows from maturing investments at higher rates.

Annualized investment portfolio yields decreased to 2.3% in H1 2022, down from 2.9% in H1 2021, reflecting rising fixed-income yields more than offset by weaker performance from alternative assets.

A rapid increase in unrealized losses on fixed maturities amid higher interest rates and widening of spreads led to a 19% decline in group shareholders’ equity in H1 2022.

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