P/C Insurers’ Net Income Fell 26% in Q1

July 15, 2016

U.S. property/casualty insurers 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.

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.

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.

Hartwig Commentary

Dr. Robert Hartwig, president of the Insurance Information Institute (III), in an extended first quarter commentary on III’s website, 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.”

Hartwig said the industry was helped by exposure growth in segments such as new vehicle sales and construction.

Hartwig said some economists see the economy as close to full employment, although there are some signs that there is still slack in the labor market. “Still, with more people working and rising wages, payrolls are expected to continue growing, resulting in rising new premiums written by workers’ compensation insurers in 2016,” he said.

He also said that if the first quarter increase in loss costs persists, “overall industry growth in net written premiums could keep pace with overall economic growth in 2015.”

Hartwig also thinks continued growth in premiums related to residential construction is likely. “The number of starts of constructed housing units continues to rise each year and, although it has not reached the level attained before the advent of the housing ‘bubble,’ is forecast to continue growing as the Millennial generation ages toward the traditional house-buying ages,” the III economist said.

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