US P&C industry sees improved net income on investment gains: ISO

Private U.S. property/casualty insurers’ net income after taxes rose to $26.7 billion through the first nine months of 2010, up from $16.4 billion through the same period of 2009, according to Insurance Services Office (ISO).
The figures are consolidated estimates for private P&C insurers based on reports accounting for at least 96% of all business written by private US P&C insurers, ISO said.
Also, insurers’ rate of return increased from 4.6% to 6.7%, ISO reported.
Gains in investment income contributed to the net increase in the insurance industry’s net income and rate of return. In the first three quarters of 2009, insurers reported investment income of $26.3 billion. That figure increased to $39.5 billion over the same period in 2010.
Poor underwriting results partially offset these investment gains. Insurers’ net underwriting losses grew to $6.2 billion for the first nine months of 2010. This compares to an underwriting loss of $3.2 billion during the same period in 2009.
The industry’s combined ratio deteriorated from 100.7% in the first three quarters of 2009 to 101.2% during the same period of 2010.
“Assuming the economic recovery continues, we may see some firming in insurance markets down the road as increases in demand for insurance absorb some of the excess capacity that has weighed so heavily on many insurance markets,” said Michael R. Murray, ISO’s assistant vice president for financial analysis.
“But, for now, leverage ratios continue to indicate that insurers have excess capacity.”
He added an economic recovery is a double-edged sword: the same growth increasing demand for insurance would likely increase losses, since claims activity would pick up. Also, inflation would accelerate claims severity as the economy inches closer to full employment.
“Whether the insurers’ bottom-line net income will benefit from the gathering strength in the economy remains to be seen,” Murray said.