P/C Industry Profits Rebound

Profitability in the property/casualty insurance industry rebounded during the first half of 2012, propelled chiefly by a sharp drop in catastrophe losses and a marked acceleration in premium growth, according to I.I.I. president Dr. Robert Hartwig.

In his commentary on the industry’s 2012 first half results, Dr. Hartwig notes that catastrophe losses plunged by 43 percent ($10.6 billion) to $13.8 billion in the first half of this year from $24.4 billion in the first half of 2011.

Net written premiums were up 3.6 percent in the first half—the best first half performance since 2005—and a full point above the 2.6 percent gain recorded in the year-earlier period.

What did this mean for industry profitability?

The P/C industry reported an annualized statutory rate of return on average surplus of 5.9 percent during the first half of 2012 (6.2 percent after excluding mortgage and financial guaranty insurers), up from 1.7 percent in the first half of 2011 (2.3 percent after excluding mortgage and financial guaranty insurers).

Overall net income after taxes (profits) in the first half reached $16.4 billion, up 245.2 percent from $4.8 billion a year earlier.

Dr. Hartwig comments:

Ever since plunging by 96 percent during the height of the global financial crisis in 2008, net income after taxes (profit) had been rebounding fairly steadily and robustly as asset prices recovered, underlying claim frequency and severity trends remained relatively subdued and the release of prior year reserves bolstered the bottom line. That was, until Mother Nature got her way in 2011.

So far in 2012, however, Mother Nature has been much less cruel and profits and profitability are once again rebounding as a result.†

Looking ahead, Dr. Hartwig notes that catastrophe losses during the third quarter were relatively benign and stock markets surged:

Though both developments are highly favorable to the industry, it is impossible to fully anticipate catastrophe loss activity and the investment environment through year’s end. Nevertheless, it is possible that the P/C insurance industry in 2012 could match or even surpass the post-crisis profit peak of $35.2 billion reached in 2010.”

The industry’s results were released by ISO and the Property Casualty Insurers Association of America (PCI).

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