P/C Direct Premium Written Up 4 Percent Through Third Quarter 2012

By Douglas A. Powell, Senior Financial Analyst

The direct premium growth for Property/Casualty insurance companies continues to be encouraging.  Overall, P/C insurance companies continued to serve their clients during catastrophic events, difficult economic conditions and even political uncertainty.  Despite these challenges, through the third quarter of 2012, P/C insurance companies as a whole have increased direct premium written (DPW) growth to a level not seen since 2006.

Through the third quarter of 2012, total direct premium written (DPW) for all P/C insurers is up more than 4 percent compared to DPW through third quarter 2011.  This increase in DPW represents nearly $15.3 billion in premium growth, of which approximately half is attributed to the Top 25 P/C insurers in terms of growth.

For the nine months ending September 30, 2012, P/C companies comprising the Top 25 insurers in terms of direct premium growth leveraged their experience and increased their DPW nearly 9.6 percent over the nine months ending September 30, 2011.  This continues the Top 25 insurers’ impressive display of premium growth, financial stability and execution.  The Top 25 accounted for 48.3 percent of the total DPW growth for the P/C insurance industry.

In contrast, the remainder of insurers that comprise the industry reported an increase in DPW of only 2.6 percent, or approximately $7.9 billion, period over period.  In total, direct premium written for the P/C industry grew more than 4 percent, nearly $15.3 billion.

Although the market continues to exhibit signs that indicate a firmer market and DPW continues to increase, P/C insurers should not expect a traditional hard market any time soon.  It is possible that the double-digit premium growth experienced in the traditional hard market cycles may have made for unrealistic premium growth expectations.

Considering this further, P/C insurers have reported average annual premium growth of 2.2 percent since 2002. In five of those years, DPW growth exceeded reported annual inflation rates and there was not a wide variance between DPW growth and inflation during the other five years in this period. Also, only twice during the past 10 years did total DPW decrease year over year.

After reviewing those varying results, it is more realistic that expectations should relate to gradual, stable growth.  If P/C insurers hold to 10 year historical patterns, gradual, stable growth this year would lead to the highest level of year-end DPW ever reported by the P/C industry, estimated at $525 billion for 2012.

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