(The following statement was released by the rating agency) Oct 12 - Fitch Ratings has published a new report that examines financial performance of a group of 40 GAAP reporting property/casualty (re)insurer entities over a 10-year period from 2002-2011.
The report highlights two key metrics to measure financial performance - return on average shareholders' equity (ROE) and the compound annual growth rate (CAGR) in book value per share (BVPS).
The analysis also looked at underwriting performance as measured by the combined ratio, and its correlation to ROE and BVPS growth for the insurers in the sample group.
The relative underwriting performance, ROEs and BVPS growth of the individual companies in the study group shows wide disparity in performance across companies. The analysis also shows generally consistent company rankings by these performance metrics for the 10-year period compared with the most recent five years from 2007-2011.
Financial performance, or the ability of an insurer to internally generate capital through earnings, is a key factor in credit ratings. However, the strongest performers on the metrics analyzed in this study are not necessarily the most highly rated, as a higher ROE and BVPS growth may correspond with higher leverage and potential volatility from other risk factors such as catastrophe exposure.
For example, diversified writers performed below average on the metrics measured, but as a group they are the most highly rated due to capital strength as well as size/scale and diversification benefits. Reinsurers as a group were better performers, but their ratings may also consider more modest capital bases, business concentrations, and exposure to greater underwriting volatility.
(Caryn Trokie, New York Ratings Unit)