Staying Positive: Premium Growth Levels Not Seen Since 2006

P/C Direct Premium Growth – Year-end 2011 vs. Year-end 2010

May 21, 2012

By Douglas A. Powell, Senior Financial Analyst, Demotech, Inc.

Despite the economic uncertainties, for the year ending December 31, 2011, Property/Casualty insurance companies in total increased direct premium written (DPW) and overall premium growth to levels not seen since 2006.  In fact, the similarities between 2011 and 2006 do not stop at DPW and premium growth.

There were 2,476 individual P/C insurers reporting financial results to the NAIC for 2011, as compared to 2,482 in 2006.  P/C insurers reported approximately $495 billion in DPW, as well as experiencing more than 3.5 percent premium growth over the previous year, in both 2011 and 2006.

It is worth noting that P/C insurers have never reported total DPW in excess of $500 billion, and P/C insurers are again near that threshold.  It is possible that the double-digit premium growth experienced in the hard cycle may have made for unrealistic premium growth expectations.

Considering this further, P/C insurers have experienced average annual premium growth of 2.2 percent since 2002. In five of those years, the 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 that period did total DPW decrease year over year.

After reviewing those varying results, it is more realistic that expectations should relate to gradual, stable growth.  In all four quarters of 2011, DPW growth increased in comparison to the respective 2010 quarter.

Top 10 Groups by 2011 DPW Growth

Liberty Mutual and Berkshire Hathaway, Inc. were the only P/C groups to experience DPW growth in excess of $1 billion.  The groups comprising the Top 10 in terms of DPW growth accounted for approximately 41 percent of all year over year growth in 2011, while groups outside of the Top 10 accounted for an additional 41 percent.  Unaffiliated companies accounted for the remaining 18 percent of the total DPW growth in 2011.

Top 25 Individual Companies by 2011 DPW Growth

For the year ending December 31, 2011, the Top 25 individual P/C insurers increased their direct premium written by 12.6 percent, approximately $9.8 billion.  Consequently,  he Top 25 accounted for more than 53 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 growth of approximately 2.2 percent, or $8.8 billion, over last year.  In total, direct premium written for the P/C industry grew more than $18 billion or approximately 3.9 percent.

As a whole, P/C insurers remain financially stable.  In fact, financially stable P/C insurers will continue to weather catastrophe events and honor meritorious claims.  This has recently been echoed by Robert Gordon, senior vice president of Property Casualty Insurers Association of America.  He has stated, “Despite the most active and deadliest tornado season in more than half a century and a host of other challenges, insurers emerged from 2011 strong, well capitalized, and capable of paying future claims.”

Policyholders should be able to take comfort in this while recognizing the importance of the service these companies provide in protecting them from unforeseen events.

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