Q3 industry results: Accident year vs. calendar year

III just published Q3 results: Year-to-date, the p/c industry is running at 100.9% on $335B in net earned premium. (Here’s a PCI release on the same data, with a bit more detail.)

I got curious about results, so I downloaded data by company for the entire industry from SNL.com. Results are virtually the same. 100.8% CR on $334B NEP.

I like to look at accident year combined ratios – the combined ratio with development on prior accident year losses removed. Through Q3, the industry AY CR was 103.5%.

That implies that there was more than $8.8B of favorable development from prior years. I drilled down a bit on that number, using SNL’s “Business Focus” classification.

SNL classifies companies by their dominant line of business:

  • Accident & Health
  • Commercial Financial Lines
  • Commercial General Liability
  • Commercial Lines
  • Commercial Medical Malpractice
  • Commercial Property
  • Commercial Workers Compensation
  • Large Reinsurance
  • P&C Minimum NPW (basically runoff)
  • Personal Lines

But the taxonomy isn’t perfect. Some companies defy easy classification. Chubb, for example, writes personal lines and commercial lines. Using SNL’s system, though, all of Chubb’s premium falls into the commercial lines segment.

Even so, I think it’s a useful way to look at industry results, as long as you are a bit careful with your conclusions.

Of this year’s $8.8B favorable, nearly all  – $8.2B – came from personal lines companies – the State Farms, Allstates and GEICOs. These guys are about half of all p/c premium. It’s not unusual for them to reserve conservatively, then release as older claims settle. Personal lines companies are running a 100.2% CY CR and a 105.2% AY CR, implying that they have received five points of lift from favorable development.

At the same time, commercial financial lines have booked $1.2B of unfavorable development, mainly from mortgage insurers. This tiny segment – about 1% of industry volume – has been a drag on industry results for several years. The segment booked 150.5% CY CR and 130.8% AY CR, results that are actually quite a bit better than usual for this beleaguered segment. Last year their CY CR was 174.6%.

Mortgage insurers gum up industry analysis for a couple of reasons. They (quite legally) book results differently from other p/c insurers, not recognizing future defaults that I think many actuaries would consider IBNR. Their recent distress has complicated  bookings further, but that’s a topic for another day.

The other big movers in development on prior results were medmal insurers ($762M favorable) and commercial property insurers ($707M favorable).

The medmal companies only constitute about 1% of p/c industry volume. They have released nearly $9B of prior-year reserves since the end of 2005. For the year, medmal-focused companies are writing at a 98.5% CY CR, vs. a 115.5% AY CR. That’s 17 points of lift from prior-year results.

Insurers focused on commercial property are at 98.9% and 100.2% for the calendar year and accident year, respectively. Less lift, because the segment is 11 times bigger than SNL’s medmal segment.



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