Net income for P&C insurers slipped slightly in the first quarter of 2014, dipping to $13.8 billion from $14.3 billion in Q1 2013, due to deteriorating underwriting results, according to a joint report released Thursday by the Property Casualty Insurers Association of America (PCI) and ISO. Overall profitability industry-wide, as measured by return on average surplus, fell to 8.4% in the quarter, compared to 9.6% in the first quarter of 2013 and 10.3% for all of 2014.
Still, despite these headline numbers, Dr. Robert Hartwig, president of the Insurance Information Institute (III), is not concerned for the industry.
“Despite an unusually costly winter, rising non-cat losses, and persistently low interest rates, the industry posted another profitable quarter aided by capital gains and reserve releases,” Hartwig wrote in a statement following the report. ”Premium growth, while still modest, is now experiencing its longest sustained period of gains in a decade. Fundamentally, the P/C insurance industry remains quite strong financially, with capital adequacy ratios remaining high relative to long-term historical averages.”
Overall, the industry generated $121.4 billion worth of net written premiums in Q1 2014, up 3.6% from the same period a year ago, while net earned premiums rose 4.3% to $117.9 billion.
Net income after taxes did drop slightly in the quarter, a result the report pinned almost entirely on underwriting results, as net gains on underwriting fell $2.3 billion in Q1 to $2.2 billion. That's compared to $4.5 billion in the first quarter of 2013. The combined ratio, which ISO describes as “a key measure of losses and other underwriting expenses per dollar of premium,” fell to 97.3% in Q1 2014 from 94.9% in Q1 2013.
“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,” said Robert Gordon, PCI's senior vice president for policy development and research. “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.”
On the upside of the balance sheet, ISO and PCI reported that insurer's net investment gains rose $1.3 billion to $14.1 billion in the quarter, partially offsetting the decline in net gains on underwriting.
“Though insurers' net gains on underwriting in first-quarter 2014 were down from the levels experienced a year earlier, underwriting results remained unusually strong,” said Michael R. Murray, ISO's assistant vice president for financial analysis. “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% combined ratio for first-quarter 2014 was 7.7% points better than the average since first-quarter 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.”
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