U.S. p&c insurers’ profitability grows by over US$4 billion in first quarter of 2015

Private property and casualty insurers’ net income after taxes grew to US$18.2 billion in the first quarter of 2015 from US$13.9 billion in the first quarter of 2014, according to a report from ISO, a Verisk Analytics, and the Property Casualty Insurers Association of America (PCI).

The report, released on Thursday, measured insurers’ overall profitability by their rate of return on average policyholders’ surplus, which grew to 10.8% from 8.4%, Verisk Analytics noted in a statement.

Insurers’ combined ratio improved to 95.7% in Q1 2015 from 97.1% in Q1 2014. Net written premium growth remained unchanged at 3.7% for the first quarters of 2014 and 2015, Verisk Analytics reported. Net investment income increased to US$11.7 billion in the first quarter of 2015 from US$11.2 billion a year earlier, and realized capital gains jumped to US$4.7 billion from US$2.9 billion, resulting in US$16.4 billion in net investment gains for first quarter of 2015.

In the first quarter of 2015, the industry also continued to see strong underwriting results, attaining gains for a third quarter in a row, the report noted. The improvement in underwriting results is mainly due to the growth in earned premiums in excess of the growth in losses and loss adjustment expenses (LLAE). In the first quarter of 2015, earned premiums grew 3.7% to US$121.9 billion, while LLAE rose just 1.7% to US$81.9 billion. Other underwriting expenses grew 3.5% to US$35.3 billion and net underwriting gains increased to US$4.1 billion from US$2.4 billion. [click image below to enlarge]

“Property/casualty insurers had a strong first quarter, underscoring strong capital levels, competitive markets, underwriting disciplines and business competencies,” Robert Gordon, PCI’s senior vice president for policy development and research, said in the statement. “These results, partially attributable to mild catastrophic losses, have insurers well positioned to continue to provide the necessary financial security for their policyholders as we move farther into yet another uncertain hurricane season.”

Beth Fitzgerald, president of ISO Insurance Programs and Analytics Services, suggested that the industry needs to focus on underwriting, as “investment gains may be unpredictable and investment yields will likely remain suppressed for a while. It’s those insurers that stay current on emerging issues and make use of predictive analytics that will be the best prepared to weather potential storms that the markets, social or technological developments, or nature might send their way.”