P/C Insurers Show Big Gain in Underwriting Profits

Private U.S. property/casualty insurers’ net income after taxes rose to $43 billion in nine-months 2013 from $27.8 billion in nine-months 2012, with insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus increasing to 9.5 percent from 6.5 percent.

Insurers’ pretax operating income – the sum of net gains or losses on underwriting, net investment income, and miscellaneous other income – grew to $45.7 billion in nine-months 2013 from $31.4 billion in nine-months 2012.

The increases in insurers’ pretax operating income, net income after taxes, and overall rate of return were driven by a $16.7 billion swing to $10.5 billion in net gains on underwriting in nine-months 2013 from $6.2 billion in net losses on underwriting in nine-months 2012. The combined ratio improved to 95.8 percent for nine-months 2013 from 100.7 percent for nine-months 2012.

The results were reported by ISO, a Verisk Analytics company, and the Property Casualty Insurers Association of America (PCI). The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers.

Gains in Underwriting

The swing to net gains on underwriting in nine-months 2013 reflects premium growth and a decline in loss and loss adjustment expenses (LLAE).

Insurers’ overall results for nine-months 2013 also benefited from a $2.1 billion increase in net investment gains – the sum of net investment income and realized capital gains (or losses) on investments – to $40.4 billion in nine-months 2013 from $38.3 billion in nine-months 2012.

The improvement in underwriting and investment results was partially offset by a drop in miscellaneous other income and higher taxes. Miscellaneous other income fell $1.3 billion to $0.9 billion in nine-months 2013 from $2.2 billion in nine-months 2012 as insurers’ federal and foreign income taxes rose $2.2 billion to $8.7 billion from $6.5 billion.

Policyholders’ surplus grew $37.3 billion to $624.4 billion at Sept. 30, 2013, from $587.1 billion at year-end 2012.

“Insurers’ overall results for nine-months 2013 were certainly better than their results for nine-months 2012, with insurers posting their highest annualized rate of return and their best combined ratio through nine months since 2007,” says Michael R. Murray, ISO’s assistant vice president for financial analysis.

Insurers’ strong underwriting results lifted their annualized overall rate of return through nine months to 9.5 percent. Benign weather, a sharp drop in U.S. catastrophe losses, and special developments affecting the mortgage and financial guaranty insurance segment account for much of the improvement in results, Murray says.

“The $37.3 billion increase in policyholders’ surplus to a record-high $624.4 billion at Sept. 30, 2013, is a testament to the strength and safety of insurers’ commitment to policyholders,” says Robert Gordon, PCI’s senior vice president for policy development and research.

Underwriting Results

Insurers’ net gains on underwriting swung to positive $10.5 billion in nine-months 2013 from negative $6.2 billion in nine-months 2012 as premiums rose and LLAE declined.

Net written premiums rose $14.7 billion, or 4.2 percent, to $363.4 billion for nine-months 2013 from $348.7 billion for nine-months 2012. Net earned premiums rose $13.4 billion, or 4 percent, to $348.3 billion from $334.8 billion.

Net LLAE (after reinsurance recoveries) dropped $7.4 billion, or 3 percent, to $235.6 billion in nine-months 2013 from $243 billion in nine-months 2012.

The growth in premiums and the decline in LLAE were partially offset by increases in other underwriting expenses and dividends to policyholders. Other underwriting expenses rose $4 billion to $100.9 billion in nine-months 2013 from $96.9 billion in nine-months 2012 as dividends to policyholders grew $0.1 billion to $1.3 billion from $1.1 billion.

The decrease in overall net LLAE was largely driven by a decline in catastrophe losses, with ISO estimating that private insurers’ net LLAE from catastrophes dropped $4.5 billion to $12.5 billion in nine-months 2013.

“Growth in overall net written premiums held fairly steady, accelerating only slightly to 4.2 percent in nine-months 2013 from 4.1 percent in nine-months 2012. But written premiums through nine months haven’t grown this rapidly since 2006, when they rose 5.1 percent compared with their level a year earlier,” said Murray.

“Underwriting profitability improved for all major sectors of the industry, reflecting the effects of premium growth and the drop in LLAE,” said Gordon.

Topics Carriers USA Profit Loss Underwriting Property Casualty