Catastrophe losses from Hurricane Irene added to unprecedented first-half catastrophe losses and broadly inadequate pricing promoting a shift to a sizeable 9M'11 underwriting loss. The aggregate combined ratio of 47 publicly traded property/casualty (re)insurers deteriorated to 105.3% from 96.1% in the prior year.
Shareholders' equity grew by only 1% for this group in the nine-month period due to weaker operating earnings and declining investment gains. Share repurchases moderated considerably in the period, particularly among reinsurers.
The group's operating return on average equity (ROAE), which excludes realized gains and losses from earnings, fell to 2.2% in the first nine months of 2011 from 7% in the prior year. Only three companies in the group reported an annualized operating ROAE above 10% thus far in 2011, while 20 companies have a year-to-date operating loss.
Favorable price movement is anticipated in property lines in both primary and reinsurance markets going forward, with other commercial segments showing positive signs of growth as well. Fitch believes that this price reaction is well overdue, but it remains unclear if momentum will hold for further pricing improvement that is necessary to return the broader market to adequate return on capital levels.