Direct premium written (DPW) for property/casualty insurance companies continues to increase, albeit gradually. At year-end 2015, approximately $585 billion of DPW was reported, a record-high for the industry. For 2015, total DPW for all P/C insurers aggregately increased 2.5 percent over 2014, an increase of nearly $14.4 billion.

Through the third quarter of 2016, the industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased 3.9 percent over 2015.

For the nine months ending Sept. 30, 2016, P/C companies comprising the top 25 insurers in terms of DPW increased DPW 12.4 percent, or $10.8 billion over the first nine months of 2015. This continues the top 25 insurers’ impressive display of premium growth and financial stability. The top 25 accounted for 63 percent of the growth in the P/C industry’s DPW. In contrast, the remainder of the industry reported an increase in DPW of 1.8 percent, or $6.3 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. The ratio is indicative of its premium leverage on a direct basis, without consideration of the effect of reinsurance. Since 2010, this ratio for P/C companies 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. 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.

Expectations should relate to gradual, stable growth. If the industry holds to its 10-year pattern, growth in 2016 would yield the highest year-end DPW reported by the P/C industry.

About Douglas A. Powell

Powell is a senior financial analyst with Demotech Inc., a Columbus, Ohio-based financial analysis firm.