P/C Direct Premium Written Up 4.2 Percent

Direct premium written (DPW) for property/casualty insurance companies continues to increase, albeit gradually, according to a Demotech analysis. 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 third quarter of 2015, the insurance industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased 4.2 percent over 2014.

For the nine months ended Sept. 30, 2015, P/C companies comprising the Top 25 insurers in terms of DPW increased their DPW 12.2 percent over the first nine months of 2014. This continued the Top 25 insurers’ impressive display of premium growth and financial stability. The Top 25 accounted for more than 55 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 2.3 percent, or $8 billion year-over-year.

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 considering of the effect of reinsurance. Since 2010, this ratio for P/C companies 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. More importantly, it is possible that 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 third-quarter data, but if the industry holds to its 10-year historical pattern, growth in 2015 would result in the highest level of year-end DPW reported by the P/C industry.