Recent (re)insurer earnings call commentary frequently highlights benefits from improved pricing in numerous segments. However, underlying loss ratios in aggregate were virtually unchanged period to period. Changes in the group's combined ratio were more greatly influenced by reductions in favorable loss reserve development, offset by lower expense ratios and catastrophe related losses.
"Improved pricing in many product lines is likely to support performance through the second half of the year," says Christopher A. Grimes, Director, Insurance. "Overall improvement in full year results will again hinge on second half catastrophe experience.
The last two years were affected by large fourth quarter catastrophe losses from hurricanes and California wildfires. Hurricane Dorian, the first major hurricane of 2019, struck the Bahamas on Sept. 1 and currently remains west of the U.S. coastline. The final path of the storm and the extent of damage it will produce remain uncertain, but Dorian is expected to have a meaningful impact on 2H19 results. However, it will take some time for damage estimates to emerge and uncertainty remains regarding subsequent tropical storm events.
Operating earnings for the group expanded by 4% for the period versus 1H2018. Operating return on average equity (ROAE) was unchanged at 8.3% in 1H 2019. Twenty-three of the 47 companies reviewed reported an operating ROAE above 10% for the period.
Separately, growth in investment earnings, particularly unrealized gains on equities and fixed income holdings strongly contributed to an 11% increase in the group's shareholders' equity to $748 billion at midyear 2019 from $674 billion at YE18, helped also by strong net earnings. More volatile equity market performance and potential for greater second half share repurchase activity may likely reduce the pace of book value gains over the remainder of the year.
Fitch maintains stable sector and rating outlooks for both the U.S. P/C and global reinsurance sectors.
The full report, "North American Property/Casualty Insurers' 2019 Midyear Results," is available at www.fitchratings.com.