Losses from catastrophes drop year-over-year in first half of 2012 for American P&C firms

Net income after taxes increased while net losses and loss adjustment expenses (LAEE) decreased year-over-year for American non-government property and casualty insurance firms, due in part to a reduction in losses from catastrophes for the first six months of 2012, according to a New Jersey think tank.

ISO, a unit of Jersey City-based Verisk Analytics Inc., stated in a joint press release with the Property Casualty Insurers Association of America (PCI) that private insurers’ net LLAE from catastrophes was $12.6 billion for the first six months of 2012, down from $25.7 billion during the same period in 2011. All figures are in U.S. currency.

Catastrophes that contributed to LAEE in the first half of 2011 included tornadoes in May of that year, including one in Joplin, Missouri, said Michael Murray, assistant vice-president for financial analysis at ISO. He added losses from the earthquake in Christchurch, New Zealand in February of that year and the earthquake and resulting tsunami in Japan the following month also affected the LAEE.

Catastrophes striking the U.S. in the first half of 2012 “caused $13.8 billion in direct insured losses (before reinsurance recoveries) for all insurers,” according to the press release.

Net income after taxes for insurers rose to $16.4 billion during the first half of 2012, up from $4.8 billion during the first half of 2011.

The figures are “consolidated estimates” for all U.S. property and casualty insurers, including firms owned by policy holders and shareholders but excluding state insurance funds and quasi-government agencies.

Net losses on underwriting fell to $7 billion during the first half of this year, from $24.1 billion during the same period in 2011.

“Net LLAE (after reinsurance recoveries) dropped $13.3 billion,” or 7.6%, from $174.2 billion in the first half of 2011 to $160.9 billion for the same period this year, according to the joint press release.

ISO and PCI also reported that, excluding mortgage and financial guaranty insurers, industry net premiums for the first six months rose 3.8% in 2012, to $224.4 billion.

Insurers’ net investment income was $23.7 billion for the first half of 2012, down 4.4% from the first half of 2011.

“On the investment side, it’s all a function of yields and developments in financial markets,” Murray said. “I won’t hazard a guess as to where yields are going but I will say that market interest rates are at historic lows. To the extend that insurers still have all the bonds in their portfolios that are earning higher yields, they will be reinvesting the funds they get when those older bonds mature at whatever market yields are current at the time.”

Editors Note: This story originally contained incorrect figures for net income, net losses on underwriting and net written premiums and has since been corrected.