Private US property/casualty insurers’ net income after taxes grew to $63.8bn in 2013 from $35.1bn in 2012, with insurers’ overall profitability as measured by their rate of return on average policyholders’ surplus climbing to 10.3% from 6.1%. Insurers’ overall rate of return had risen to its highest level since the 12.4% for 2007.
Insurers’ pre-tax operating income rose to $64.3bn($35bn). Improvement in underwriting results drove the increases in insurers’ pre-tax operating income, net income after taxes, and overall rate of return, with insurers’ $15.5bn in net gains on underwriting in 2013 constituting a $30.9bn swing from their $15.4bn in net losses on underwriting in 2012. The combined ratio improved to 96.1 for 2013 from 102.9 for 2012, according to ISO and the Property Casualty Insurers Association of America(PCI).
The swing to net gains on underwriting is attributable to premium growth and a drop in net losses and loss adjustment expenses(LLAE). Net written premiums climbed 4.6% to $477.7bn, and net earned premiums grew 4.2% to $467.9bn. Conversely, net LLAE fell 5.5% in 2013 to $315bn. Those positive developments were partially offset by increases in underwriting expenses and dividends to policyholders, which both rose last year.
- Insurers’ overall results for 2013 also benefited from a $4.6bn increase in net investment gains which rose to $58.8bn.
- Partially offsetting the improvement in underwriting and investment results, insurers’ miscellaneous other income fell $0.9bn to $1.5bn in 2013 from $2.4bn in 2012, and their federal and foreign income taxes rose $5.8bn to $12bn.
- Policyholders’ surplus grew $66.3bn to a record $653.3bn at year-end 2013 from $587.1bnn at year-end 2012, largely as a result of insurers’ $63.8bn in net income after taxes.
- The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96% of all business written by private US property/casualty insurers.
“The $66.3 billion increase in policyholders’ surplus to a record-high $653.3bn at year-end 2013 is a testament to the strength and safety of insurers’ commitment to policyholders. Insurers are strong, well capitalized, and well prepared to pay future claims,” said Robert Gordon, PCI’s SVP for policy development and research. “The US marketplace emerged relatively unscathed from the hurricane season last year. But advanced risk models show that losses from catastrophic events will continue to increase, and insurers will need to keep on building their financial resources to protect policyholders and bolster economic resiliency before the next major event like Hurricane Katrina or the September 11 terrorist attack occurs. Insurers are taking the steps necessary to secure their financial commitments to consumers. We are also working with homeowners, businesses, and federal, state, and local officials to improve disaster readiness and mitigation to minimize future human tragedy and economic losses. Catastrophe planning and preparation continue to be critical watchwords for 2014.”
“The swing to net gains on underwriting in 2013 is certainly welcome news for insurers, whose net investment income— primarily interest on bonds and dividends from stocks—peaked at $55.1bn in 2007 but totaled just $47.4bn last year as a consequence of the historically low investment yields brought about by the financial crisis, the Great Recession, and the economy’s slow recovery from those events,” said Michael R. Murray, ISO’s AVP for financial analysis. “Insurers earned net gains on underwriting in just 12 of the 55 years from the start of ISO’s data in 1959 to 2013, with insurers posting cumulative net losses on underwriting amounting to $485.9bn during that period. But with much of the improvement in underwriting results last year attributable to special developments including relatively benign weather, a sharp drop in catastrophe losses, and increases in reserve releases, one has to wonder just how sustainable the net gains on underwriting will prove to be. Other items clouding the outlook for underwriting results include insurers’ record-high policyholders’ surplus to the extent that it sheds light on insurers’ capacity to bear risk and the potential supply of insurance in competitive markets governed by the law of supply and demand.”
The property/casualty industry’s 10.3% of return for 2013 was the net result of double-digit rates of return for mortgage and financial guaranty(M&FG) insurers and high single-digit rates of return for other insurers. ISO estimates that M&FG insurers’ rate of return on average surplus improved to 30.2% for 2013 from 0.4% for 2012. Excluding M&FG insurers, the industry’s rate of return rose to 9.8% in 2013 from 6.3% in 2012.
|
