P/C Insurers’ Net Income Rose in First-Half of 2014

U.S. property/casualty insurers’ net income rose $1.6 billion to $26.0 billion in first-half of 2014 while pretax operating income fell $1.9 billion to $23.9 billion in first-half 2014, a decrease driven by lower gains on both underwriting and investments.

Net gains on underwriting fell to $0.3 billion from $2.2 billion in first-half 2013 including mortgage and financial guaranty (M&FG) insurers. The industry’s combined ratio deteriorated to 98.9 percent from 98.0 percent for first-half 2013, according to ISO and the Property Casualty Insurers Association of America (PCI).

The combined ratio for the industry excluding M&FG insurers deteriorated to 99.0 percent for first-half 2014 from 97.6 percent for first-half 2013. Commercial lines insurers’ combined ratio rose 1.8 percentage points in first-half 2014 to 95.4 percent as balanced insurers’ combined ratio increased 2.3 percentage points to 102.0 percent and personal lines insurers’ combined ratio climbed 0.7 percentage points to 100.0 percent, according to the analysis by ISO and PCI.

Insurers’ net investment income dropped $0.3 billion to $23.0 billion.

Reflecting insurers’ net income after taxes, policyholders’ surplus grew to a record-high $671.6 billion at June 30, 2014, from $653.4 billion at year-end 2013.

With policyholders’ surplus rising more rapidly than insurers’ net income after taxes, insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus slipped to 7.8 percent in first-half 2014 from 8.1 percent in first-half 2013 despite the increase in insurers’ net income.

The property/casualty industry’s 7.8 percent annualized rate of return for first-half 2014 was the net result of double-digit rates of return for mortgage and financial guaranty (M&FG) insurers and single-digit rates of return for other insurers. Excluding M&FG insurers, the industry’s annualized rate of return fell to 7.7 percent in first-half 2014 from 8.5 percent in first-half 2013.

“Insurers are strong, well-capitalized, and well prepared to pay future claims,” said Robert Gordon, PCI’s senior vice president for policy development and research. “But it only takes one powerful storm to disrupt countless lives and cause tens of billions in damage, and this hurricane season is far from over.”

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.

Underwriting Results

Insurers’ net gains on underwriting dropped to $0.3 billion from $2.2 billion in first-half 2013 as growth in premiums fell short of growth in the cost of providing insurance protection. Net written premiums rose $9.5 billion, or 4.0 percent, to $246.4 billion for first-half 2014 from $236.9 billion for first-half 2013. Net earned premiums rose $9.7 billion, or 4.2 percent, to $237.8 billion from $228.2 billion.

Net loss adjustment expenses (LLAE) after reinsurance recoveries rose $10.1 billion, or 6.4 percent, to $168.1 billion in first-half 2014 from $158.0 billion in first-half 2013 as other underwriting expenses rose $1.5 billion, or 2.2 percent, to $68.5 billion in first-half 2014 from $67.0 billion in first-half 2013.

The increase in overall net LLAE reflects increases in both catastrophe and non-catastrophe losses.

ISO estimates that private insurers’ net LLAE from catastrophes rose $2.6 billion to $13.0 billion in first-half 2014 from $10.3 billion in first-half 2013. The $13.0 billion in net LLAE from catastrophes is primarily attributable to catastrophes that struck the United States. Net LLAE excluding catastrophes rose $7.5 billion, or 5.1 percent, to $155.1 billion through six-months 2014 from $147.6 billion through six-months 2013.

Second-Quarter Results

Consolidated net income after taxes rose to $12.1 billion in second-quarter 2014, up $2.0 billion from $10.1 billion in second-quarter 2013. Property/casualty insurers’ annualized rate of return on average surplus increased to 7.3 percent in second-quarter 2014 from 6.6 percent a year earlier.

For the industry overall, net losses on underwriting shrank $0.2 billion to $2.1 billion in second-quarter 2014 from $2.3 billion in second-quarter 2013. ISO estimates that the net LLAE from catastrophes included in private U.S. insurers’ financial results rose to $9.8 billion in second-quarter 2014 from $7.9 billion a year earlier.

The combined ratio improved to 100.6 percent in second-quarter 2014 from 100.9 percent in second-quarter 2013. Net written premiums rose $5.1 billion, or 4.2 percent, to $125.0 billion in second-quarter 2014 from $119.9 billion in second-quarter 2013.

Topics Catastrophe Carriers USA Profit Loss Underwriting Property Property Casualty Casualty