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First quarter results for U.S. property/casualty insurers show they made a profit on underwriting for the first time since late 2009.
Private U.S. property/casualty insurers’ net income after taxes rose to $14.4 billion in first-quarter 2013 from $10.2 billion in first-quarter 2012, with insurers’ annualized rate of return on average policyholders’ surplus climbing to 9.6 percent from 7.2 percent, according to a new report released on June 24 from analytics firm ISO and the Property Casualty Insurers Association of America (PCI).
The increases in insurers’ net income and overall rate of return were driven by a $4.8 billion swing to $ 4.6 billion in net gains on underwriting in first-quarter 2013 from $0.1 billion in net losses on underwriting in first-quarter 2012.
Insurers’ profits on underwriting, the first since fourth-quarter 2009, reflect a combination of premium growth, increases in reserve releases and a decline in weather-related catastrophe losses.
ISO and PCI said that insurers’ overall results for first-quarter 2013 also benefited from special developments that bolstered investment results. Net investment gains – net investment income plus realized capital gains – rose $0.4 billion to $12.8 billion in first-quarter 2013 from $12.3 billion in first-quarter 2012 as write-downs on impaired investments dropped.
Pretax operating income – the sum of net gains or losses on underwriting, net investment income, and miscellaneous other income – grew to $15.9 billion in first-quarter 2013 from $11.9 billion in first-quarter 2012.
Policyholders’ surplus – insurers’ net worth measured according to Statutory Accounting Principles – increased $20.9 billion to a record-high $607.7 billion at March 31, 2013, from $586.9 billion at December 31, 2012. The figures are consolidated estimates for all private P/C insurers based on reports accounting for at least 96 percent of all business written by private U.S. P/C insurers.
Premiums Rose, LLAE Declined
Insurers swung to $4.6 billion in net gains on underwriting in first-quarter 2013 as premiums rose and loss and loss adjustment expenses (LLAE) declined.
Net written premiums increased $4.6 billion, or 4.1 percent, to $117.1 billion in first-quarter 2013 from $112.5 billion in first-quarter 2012 as net earned premiums rose $4.8 billion, or 4.5 percent, to $112.9 billion from $108.1 billion.
Net LLAE dropped $1.4 billion, or 1.9 percent, to $74.2 billion in first-quarter 2013 from $75.6 billion in first-quarter 2012.
The decrease in overall LLAE reflects favorable reserve development and associated reserve releases.
Insurers released $5.6 billion from reserves in first-quarter 2013, with reserve releases rising from $3.9 billion in first-quarter 2012.
The decrease in overall LLAE also reflects a decline in catastrophe losses. ISO estimates that private insurers’ net LLAE from catastrophes fell $1.1 billion to $2.3 billion in first-quarter 2013 from $3.4 billion in first-quarter 2012.
Reflecting the growth in premiums and the decline in LLAE, the combined ratio improved by 4.1 percentage points to 94.8 percent in first-quarter 2013 from 99 percent in first-quarter 2012.