Profits, Profitability Fall in First Quarter for Property & Casualty Insurers
Staff Writer | July 03, 2014
Private U.S. property & casualty insurers' net income after taxes fell to $13.8 billion in first-quarter 2014 from $14.3 billion in first-quarter 2013, with insurers' overall profitability as measured by their annualized rate of return on average policyholders' surplus falling to 8.4 percent from 9.6 percent, according to ISO, a Verisk Analytics company and the Property Casualty Insurers Association of America (PCI).
Insurers' pretax operating income—the sum of net gains or losses on underwriting, net investment income, and miscellaneous other income—fell to $13.7 billion in first-quarter 2014 from $15.8 billion in first-quarter 2013.
Deterioration in underwriting results prompted the decreases in insurers' pretax operating income, net income after taxes, and overall rate of return, with net gains on underwriting falling $2.3 billion to $2.2 billion in first-quarter 2014 from $4.5 billion in first-quarter 2013. The combined ratio, a key measure of losses and other underwriting expenses per dollar of premium, deteriorated to 97.3 percent for first-quarter 2014 from 94.9 percent for first-quarter 2013, according to ISO and PCI.
Net gains on underwriting dropped as premium growth slowed and net loss and loss adjustment expenses (LLAE) surged upward, with quarterly LLAE rising for the first time since Superstorm Sandy struck in fourth-quarter 2012.
The deterioration in underwriting results in first-quarter 2014 also reflects increases in underwriting expenses and dividends to policyholders, which both rose compared with their levels in first-quarter 2013.
Partially offsetting the decline in net gains on underwriting, insurers' net investment gains, the sum of net investment income and realized capital gains (or losses) on investments, rose $1.3 billion to $14.1 billion in first-quarter 2014 from $12.8 billion in first-quarter 2013. Insurers' results for first-quarter 2014 also benefited from a $0.4 billion increase in miscellaneous other income to $0.2 billion in first-quarter 2014 from negative $0.1 billion in first-quarter 2013. Insurers' federal and foreign income taxes for first-quarter 2014 amounted to $2.8 billion, virtually unchanged from their level a year earlier.
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.
"Policyholders' surplus, the funds available to cover new claims, rose $8.7 billion in first-quarter 2014 to a record-high $662.0 billion, leaving no doubt that insurers are strong, well-capitalized, and well-prepared to pay future claims. Policyholders can rely on insurers to fulfill their obligations and help finance economic recovery even if we're struck this hurricane season by a storm more devastating than Superstorm Sandy or Hurricane Katrina," says Robert Gordon, PCI's senior vice president for policy development and research. "The experts are predicting the hurricane season this year will be relatively calm, but it only takes one powerful storm to disrupt millions of lives and cause tens of billions of dollars in damage. Moreover, millions of Americans live with the ever-present threat of a catastrophic earthquake or terrorist attack that could cause vast devastation and loss of life, while others of us live in locations at risk of being struck by wildfires, tornadoes, inland flooding, or other natural disasters. This means that all of us - insurers, homeowners, businesses, and officials at all levels of government - must continue to focus on risk management, disaster readiness, and mitigation aimed at minimizing the human tragedy caused by future catastrophes. Many businesses and individual consumers could also benefit from reviewing whether they have adequate insurance including flood and earthquake coverage."
"Though insurers' net gains on underwriting in first-quarter 2014 were down from the levels experienced a year earlier, underwriting results remained unusually strong. Insurers posted net gains on underwriting for only 21 of the 113 quarters since the start of ISO's quarterly data, and insurers' 97.3 percent combined ratio for first-quarter 2014 was 7.7 percentage points better than the average since first-quarter 1986," says Michael R. Murray, ISO's assistant vice president for financial analysis. "Better-than-average underwriting profitability offset weakness in investment income, with insurers' 8.4 percent annualized overall rate of return for first-quarter 2014 equaling the average rate of return since the beginning of 1986. But with premium growth slowing and loss and loss adjustment expenses surging upward in first-quarter 2014, there is some risk that net gains on underwriting will slip further as the year progresses. Further slippage in underwriting results could lead to downward pressure on insurers' overall profitability, as current investment yields make offsetting increases in investment income rather unlikely. In fact, insurers' net investment income, primarily interest on bonds and dividends from stocks, peaked at $15.4 billion in fourth-quarter 2007 but totaled just $11.2 billion in first-quarter 2014 as a result of low investment yields brought about by the Great Recession, the financial crisis, and residual weakness in the economy."
- Electronic Chat with Larissa Tosch
- Martha Notaras Will Join ITA LIVE 2019 as a Keynote Speaker
- Five Things to Consider When Evaluating Your Cyber Risk
- ITA Pro Magazine, January/February 2019
- Major Ransomware Attack Could Hit U.S. with $89B In Economic Damages
- ITA Announces 1st of Three Keynote Speakers at ITA LIVE 2019
- Electronic Chat with Jeroen Morrenhof
- Legacy Systems Are Dead. Really? Don't Count On It.
- Now Accepting Nominations for the 2019 ITA Bridge Awards
- It's time to register for ITA LIVE!
- Registration is Now Open for ITA LIVE 2019!
- What to Expect from a Digital Experience Platform Implementation
- ITA Pro Magazine September Edition is Now Available
- It's National IT Professionals Day
- Save the Date for ITA-LIVE 2019
- OneShield Software and UrbanStat Work Together to Improve Real-Time Analytics and Risk Decision-Making
- ITA LIVE 2019 - SAVE THE DATE!
- Insurance Technology Association Announces New Editor-in-Chief
- August 2018 Edition ITA Pro Magazine is Now Available
- Enterprise Architecture in an Agile World
- Top 10 Tips for Securing Your Mobile Devices and Sensitive Client Data
- Industry Insight: 4 Global Insurance Trends in Digital, Data, Content Services and Security
- Diving Deeper into Prioritizing Your Strategic Digital investments
- Why Content Rules
- How Mass Personalization Will Open the Small Business Benefits Market
- At Year End 2017, Will Your Organization Be Protected from Cyber Risks?
- Do Insurance Bots Dream of Mitigating Risk?
- Conditioned to Respond
- Managing & Mobilizing Insurance Data in a Connected World
- Race to the Finish Line
- New Tools, New Opportunities in Claims
- ITA LIVE: Reaching Insurance Industry Crossroads
- Advice to Insurance IT Leaders: Keep Your Eye on the Ball
- New Date, Venue for ITA LIVE 2017
- Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
- Insurance Disruption is Happening Right Now
- Insurity Adds Strategic Investment Partner, General Atlantic
- Beyond Transformation: The Convergence of Finance, Risk, and Actuarial Functions
- The Rapid Evolution of Consumer Protection Regulation
- Talent Hunt: Finding, Attracting, Retaining Top People
- Insurers Flexing Their Distribution Models
- Technology Driving Disruption in Insurance
- Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
- Technology Allows Commercial Lines Insurers to Stand Out
- Single Sign-on Viewed as Biggest Tech Challenge for Agencies
- ISCS Observes 20th Anniversary; Scurto Predicts Major Changes Ahead
- Policyholders and Their First Impressions
- Progressive Making Progress on the UBI Front
- High and Dry: Insurers Search for Disaster Recovery Plans
- Insurers Sign The (Un)Dotted Line
- Reflections of a Retired Insurance CIO
- Mobile Device Management Just One Answer to BYOD Issue
- Lessons from GEICO and Progressive on Winning the Critical Buying Stage
- You Are a Target for a Cyber Attack
- Web-based Systems are the Next Evolution in Claims Technology
- Gaining a “Wow” Experience from Web Users
- Time to Shift from Business/IT Alignment to Business/IT Alliance
- Healthcare Insurers Changing to Consumer Model
- Organization is the Key for Selecting Software Vendors
- Analysts Expound on the Needs of the Mid-tier Insurance Market
- Finding the Cure for Obamacare’s Website
- New Software Solutions Benefit Insurers on the Inside and Outside
- Products, Market Impede Investment in Systems for Life Insurers
- Combatting Cyber Threats: Predict, Prevent, Persist
- The Future of Telematics Heads Beyond Insurance
- The Shame in Cyber Security Lapses
- Building Policy Administration Systems for the Future
- Insurers Look Into The Eyes of Their Policyholders
- It’s a New Dawn for the ITA
INSURANCE IT NEWS
- Medical Malpractice Insurers Investing in Analytics and Emerging Tech in Face of Market Pressures, Says Novarica
- Insurtech AI Leader Betterview Appoints Dan Shoham, PhD, as Chief Science Officer
- Vermont Mutual Insurance Group Selects One Inc for Digital Payments
- Insurers Embracing Machine Vision for Underwriting and Claims, Says Novarica
- Nationwide partners with Slice Labs to develop on-demand auto insurance for rideshare drivers
- AM Best Requests Comments on Draft Criteria: Scoring and Assessing Innovation
- Majesco Acquires Insurance Software Business in India
- MEMIC Scholarship for Families of Injured Workers Now Accepting Applications
The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
ITA LIVE 2019
The tide is up! It's time to register for ITA LIVE 2019, our annual educational and networking conference! Our theme is "The InsurTech Revolution: Cutting Through the Hype." and we'll be bringing in a torrent of industry thought leaders, amazing insight and wonderful perspectives on the world of insurtech and its impact on the insurance landscape.
ITA LIVE 2019 will present real-life examples of true startup technologies that are helping insurers gain real advantage -- and a competitive edge -- in the marketplace. We’ll highlight the more successful InsurTech partnerships, while offering case studies that demonstrate exciting innovation and cutting-edge techniques impacting all aspects of the insurance ecosystem.
Ride the wave to LIVE 2019. Sign up today! We look forward to seeing you in May, 2019!
BLOGS AND COLUMNS
There are so many great advances in the area of smart homes and buildings, it makes me wonder what the actual impact has been, or what I might have... READ MORE
This month, the ITA celebrates Insurance Careers Month and encourages carriers, brokers, agents and our industry associations to plan their own... READ MORE
You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits... READ MORE
With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future... READ MORE
Finding insurance carriers willing to write commercial lines risks has always been a challenge for producers... READ MORE
As Guidewire Software prepares for the start of Connections, its 11th annual user conference that begins on Nov. 2, Brian Desmond, chief marketing... READ MORE