Net income climbs for U.S. P&C insurers in first half

Net income among private property and casualty insurers in the United States rose $1.6 billion in the first half of the year, compared with the first six months of 2013, ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America reported Monday.

After-tax net income climbed from $24.4 billion in the first half last year to $26.0 billion this year, according to the analysis, which is based on reports accounting for at least 96% of all business written by private U.S. P&C insurers.

Consolidated net income after taxes rose to $12.1 billion in the second quarter, up from $10.1 billion in the same period of 2013.

ISO and PCIAA attribute the rise in net income to the decline in pretax operating income – to $23.9 billion in first-half 2014 from $25.8 billion in first-half 2013 – as well as an increase in realized capital gains on investments (not included in operating income), and a small reduction in federal and foreign income taxes.

Realized capital gains on investments rose to $7.2 billion in the first half of 2014 from $3.9 billion in the first half of 2013, while insurers’ federal and foreign income taxes decreased $0.1 billion to $5.1 billion from $5.2 billion.

Policyholders’ surplus, or the insurers’ net worth measured according to Statutory Accounting Principles, grew to $671.6 billion as of June 30, from $653.4 billion at the end of the year for 2013.

“With policyholders’ surplus rising more rapidly than insurers’ net income after taxes, insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus slipped to 7.8% in first-half 2014 from 8.1 percent in first-half 2013 despite the increase in insurers’ net income,” the analysis notes.

Net gains on underwriting fell to $0.3 billion in first-half 2014 from $2.2 billion in first-half 2013, according to the analysis.

The combined ratio also deteriorated to 98.9% for first-half 2014 from 98.0% for first-half 2013, according to ISO, while insurers’ net investment income dropped $0.3 billion to $23.0 billion in first-half 2014 from $23.3 billion in first-half 2013.

“While insurers’ net income rose modestly in first-half 2014, the deterioration in underwriting results and the drop in investment income both raise questions about the quality or sustainability of insurers’ earnings,” Michael R. Murray, ISO’s assistant vice president for financial analysis commented in the analysis.

“Other factors raising questions about the quality or sustainability of earnings include the extent to which underwriting results benefited from favorable reserve development and the extent to which insurers’ net income benefited from realized capital gains dependent on developments in financial markets,” he noted.

The full analysis of the figures is available on the PCIAA’s website.