P/C Industry Heat

U.S. property/casualty insurers are feeling the heat of today’s competitive market and slow-growth economy.

P/C insurers in the United States saw their net income after taxes fall to $13.3 billion in first-quarter 2016 from $18.1 billion in first-quarter 2015 – a 26.6 percent decline – and their annualized quarterly yield on investments drop to 2.9 percent – the lowest this century – from 3.1 percent a year earlier, according to ISO and the Property Casualty Insurers Association of America (PCI).

Insurers’ combined ratio deteriorated to 97.5 percent in first-quarter 2016 from 95.7 percent in first-quarter 2015, and net written premium growth slowed to 3.2 percent in first-quarter 2016 from 3.8 percent a year earlier.

Direct insured property losses from catastrophes striking the United States totaled $4.8 billion in first-quarter 2016, up from $3.6 billion a year earlier and above the $3.1 billion average for first-quarter direct catastrophe losses for the past 10 years.

Net investment income dropped to $10.9 billion in first-quarter 2016 from $11.7 billion a year earlier, and realized capital gains decreased to $2.3 billion from $4.7 billion, resulting in $13.2 billion in net investment gains for first-quarter 2016, down $3.2 billion from a year earlier.

The prolonged low interest rate environment remains a critical issue for insurers. About three-fourths of insurers surveyed by A.M. Best claimed to have lowered their target return-on-equity expectations to 10 percent or lower. According to the A.M. Best Spring 2016 Insurance Industry Survey, 37.6 percent of insurers cited low interest rates as the biggest industry threat, followed by increased regulations (26.2 percent), competition (19.3 percent) and antiquated business models (12.4 percent).

Despite the not so stellar investment environment, rise in claims and declining net income, P/C insurers remain optimistic.

Dr. Robert Hartwig, president of the Insurance Information Institute (III), noted that the industry’s performance for the first quarter of 2016 was positive overall.

“Despite a considerable rise in claims, weak economic growth and persistently low interest rates, the industry posted another profitable quarter aided by capital gains and reserve releases. Premium growth, while still modest, is now experiencing its longest sustained period of gains in a decade,” Hartwig, an economist, wrote. “Fundamentally, the P/C insurance industry remains quite strong financially, with capital adequacy ratios remaining high relative to long-term historical averages.”