JERSEY CITY, N.J., July 3, 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.
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, a Verisk Analytics company (Nasdaq:VRSK), and the Property Casualty Insurers Association of America (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.
Policyholders' surplus - insurers' net worth measured according to Statutory Accounting Principles - grew $8.7 billion to a record $662.0 billion at March 31, 2014, from $653.3 billion at year-end 2013.
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," said 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."