P/C Direct Premium Written Up Nearly 4 Percent

Direct premium written (DPW) for property/casualty insurance companies continues to increase, albeit gradually. At year-end 2014, more than $570 billion of DPW was reported, a record-high for the industry. For 2014, total DPW for all P/C insurers aggregately increased 4.5 percent over 2013, an increase of $24.7 billion. Through the first quarter of 2015, the insurance industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased nearly 4 percent over 2014.

For the three months ended March 31, 2015, P/C companies comprising the Top 25 insurers in terms of DPW growth increased their DPW 11.3 percent over the first three months of 2014. This continues the Top 25 insurers’ impressive display of premium growth and financial stability. The Top 25 accounted for more than 56 percent of the growth in the P/C insurance industry’s DPW. In contrast, the remainder of the industry reported an increase in DPW of 2.2 percent, or $2.4 billion year-over-year.

It is important to note that while increasing DPW, P/C companies have aggregately maintained a sufficient level of policyholders’ surplus (PHS). 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 of the effect of reinsurance. Since 2010, this ratio for has remained stable at approximately 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 that expectations should relate to gradual, stable growth. There is always a fair amount of uncertainty in making projections based on first-quarter data, but if the industry holds to its 10-year historical pattern, growth in 2015 would again result in the highest level of year-end DPW ever reported by the P/C industry.