Weather impacts P&C results

Nationwide saw its Q2 net income fall to $57 million, compared to $657 million in 2013's second quarter. While Financial Services saw a net operating income gain—to $313 million from $185 million—the property and casualty business suffered a Q2 net operating loss of $134 million, compared to a gain of $113 million in Q2 2013.

Thresher faults higher weather-related losses. In particular, he cites storm losses in states where Nationwide has higher market share. “We had some pretty big hail storms in Pennsylvania; we had storms in Iowa,” he says. “A number of locations where we happen to have fairly high market shares in.”

Weather losses hurt the company in Q1 as well, when net income fell to $140 million compared to $484 million in Q1 2013. Thresher noted at the time that January “was probably as high of weather losses as we've had historically.”

In Q1, Thresher said he was comfortable with Nationwide's geographic spread, noting that the losses were the result of a prolonged freeze that affected many states stretching as far south as Georgia and beyond.

This quarter, Thresher likewise does not point to any state or region where he believes the company should reduce its exposure, but he does talk about growing more in areas west of the Mississippi River. “All we try to do continually is to monitor our concentrations across the country,” he says. “We want to grow, but we want to grow in a diversified way.”

Speaking to the opportunities further west, Thresher says before the company acquired Allied Insurance, its business was mostly east of the Mississippi. “Allied is more west, but we have plenty of room and wide open states where we can continue to do that,” he says.

He also says the company will look to balance personal-lines growth with growth in commercial businesses, “which actually tend to be a little less impacted by weather than individual personal lines.”

Nationwide's results were also impacted by $179 million in net realized investment losses compared to a gain of $547 million in Q2 2013, but Thresher points out the loss is a mark-to-market issue, rather than selling securities at a loss. “It's two things,” he says. “We have a derivatives program in place to shorten the duration of our P&C investment portfolio, and that's sensitive to interest rates. If interest rates go up, we'll have a gain in that program.

“And then the hedging program behind the variable annuity guarantees is fairly complex and, due to some unusual terms in statutory accounting we have an interest rate hedge in place also there, so when rates go down” the results go down, but when interest rates go up, it can go in the other direction.

Financial services

Regarding the year-over-year successes in the financial-services segment, Thresher says the equity markets have helped out some, but also points out that sales growth “was very nice again, I think up 8% year-over-year.” He says the company and distribution partners—mostly financial advisors—have done “a great job” focusing on the right products to sell.

The plan, he adds, is to keep a good balance between life, annuities and retirement plans.

Overall, Thresher says, “We are really pleased with the continued growth of the business, both on the property and casualty side as well as the financial services side.”

Despite the impact of weather losses, premiums and policy charges were up in the quarter, to $5.2 billion compared to $4.8 billion in Q2 2013.

“Obviously we had some weather challenges for our members in the first half that had an impact on earnings in the property and casualty business,” Thresher says, “But overall, I think [it's] a story of a diversified set of businesses, and I think that came through in the first half of the year for sure when you see the nice results in financial services when you have a tough P&C weather year.”