P/C Direct Premium Written Up Nearly 4.8%

Direct premium written (DPW) for property/casualty insurance companies continued its upward trend during the first quarter of 2013. At year-end 2012, the industry reported more than $523 billion of DPW — an all-time industry high. For 2012, total DPW for all P/C insurers aggregately increased 4.4 percent over 2011, an increase of nearly $22.3 billion. Through the first quarter of 2013, this growth trend has continued as DPW for all P/C insurers aggregately increased 4.8 percent over 2012.

For the three months ending March 31, 2013, P/C companies comprising the Top 25 insurers in terms of DPW leveraged their experience and increased their DPW nearly 12 percent over 2012. This continues the Top 25 insurers’ impressive premium growth and financial stability. The Top 25 accounted for nearly half of the growth in the P/C industry’s DPW. In contrast, the remainder of the industry reported an increase in DPW of only 3 percent year-over-year.

In examining DPW further, P/C companies reported an aggregate increase in DPW through first quarter 2013 of 8.3 percent over first quarter 2008. P/C companies also have aggregately maintained a sufficient level of policyholders’ surplus (PHS). Insurers added nearly $36.5 billion to PHS since first quarter 2012.

One measure that indicates P/C companies are conservatively leveraged is the DPW to PHS ratio. An insurer’s DPW to PHS ratio is indicative of its premium leverage on a direct basis, without consideration for the effect of reinsurance. For first quarter 2013, this ratio (estimated for a full year) is 69.6 percent. Since 2010, this ratio has remained stable at about 70 percent.

Although the market continues to exhibit signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market in the near future. The double-digit premium growth experienced in the historical hard market cycles may have created unrealistic premium growth expectations for this current recovery. It is more realistic to expect gradual, stable growth. However, if the industry continues to hold to its recent, gradual growth trends, it will once again report its highest level of year-end DPW.