P&C Insurers See $1.5 Billion Net Underwriting Loss in 1H

A deteriorated combined ratio seen by insurers along with slow net written premium growth contributed to net underwriting losses of $1.5 billion in the first half of 2016. Insurers’ combined ratio deteriorated to 99.8% from 97.6% in the first-half of 2015, and net written premium growth slowed to 3.0% from 4.1% a year earlier, according to a report from ISO and the Property Casualty Insurers Association of America (PCI).

The Insurance Information Institute’s Steven N. Weisbart explained:

In general, premiums may grow for any or all of several reasons. First, there is growth in the number and/or value of insurable interests (such as property and liability risks). Second, there is an increase in the willingness of buyers who had some or no insurance to purchase or add to their insurance protection, net of those who reduce or drop it. And third, there is an increase in rates (that is, the price per unit of coverage).

Net investment income dropped to $22.1 billion in the first-half from $23.4 billion a year earlier, and realized capital gains decreased to $4.4 billion from $8.2 billion, resulting in $26.5 billion in net investment gains for the first-half, down $5.1 billion from a year earlier.
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Direct insured property losses from catastrophes in the United States totaled $13.5 billion in the first-half, up from $10.7 billion a year earlier—above the $11.6 billion average for first-half direct catastrophe losses for the past 10 years, according to the report.

“The industry’s results continued to worsen in the first half of the year, as insurers reported a first-half net underwriting loss for the first time since 2012 and saw their combined ratio exceed 99%,” Beth Fitzgerald, president of ISO Solutions, said in a statement. “Catastrophe losses remained higher than in previous years. Texas was hit by a hailstorm that has been described as the costliest in the state’s history, and several states in the central United States experienced severe thunderstorms. With interest rates and investment yields remaining low, insurers must find ways to improve operational efficiency while still providing valuable coverage for their policyholders.”

In the second quarter of this year, insurers’ net income after taxes fell to $8.3 billion from $12.9 billion in the second-quarter of 2015, and their combined ratio worsened to 102.1% in second-quarter 2016 from 99.4% a year earlier.

Their annualized rate of return on average surplus dropped to 4.9% in second-quarter 2016 from 7.7% a year earlier. Net written premiums rose 2.9% in second-quarter 2016 compared with 4.5% in second-quarter 2015.

P&C Insurers’ Profitability Up in First Half of 2015

Low catastrophe losses contributed to a rise in net income for property/casualty insurers in the first half of this year, to $31 billion from $26 billion in the first half of 2014, according to ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America (PCI). Insurers’ overall profitability, measured by their rate of return on average policyholders’ surplus, grew to 9.2% from 7.8%.

“While Old Man Winter did his best to disrupt things in the Northeast during the first half of 2015, insurers overall incurred lower domestic catastrophe losses than they did during the first half of last year due to a relatively quiet tornado season and the slow start to hurricane season,” Robert Gordon, PCI’s senior vice president for policy development and research, said in a statement. “Insurers’ combined ratio and rate of return all improved in the first half of 2015, while premium growth and investment income remained relatively stable.”

Beth Fitzgerald, president of ISO Solutions noted, “Still, it’s important to note than U.S. catastrophe losses during the first half of 2015 were only slightly lower than the 10-year average. As the devastation caused by meteorological conditions associated with Hurricane Joaquin highlights, it’s crucial for insurers to remain disciplined in their underwriting and look at analytics to be ready not only for weather disasters but also for other major challenges the future may hold.”

According to the report, insurers’ combined ratio improved to 97.6% for first-half 2015 from 98.9% for first-half 2014, and net underwriting gains went to $3.39 billion from $237 million. Net written premium growth remained unchanged at 4.1 percent for the first half of 2014 and 2015.

Also in first-half 2015, earned premiums grew 4.0% to $247.5 billion, while losses and loss adjustment expenses (LLAE) rose just 1.8% to $171.3 billion. Other underwriting expenses rose 4.7% to $71.8 billion, and policyholders’ dividends were mostly unchanged at $1.0 billion. Net underwriting gains increased to $3.4 billion from $0.2 billion.

In second quarter, consolidated net income after taxes for the P&C industry rose to $12.8 billion from $12.1 billion in second-quarter 2014.

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P&C insurers’ annualized rate of return on average surplus increased to 7.6% in second-quarter 2015 from 7.3% a year earlier.

Net written premiums rose $5.5 billion, or 4.4%, to $130.6 billion in second-quarter 2015 from $125.1 billion in second-quarter 2014.