Private U.S. P&C insurers’ net income after taxes was $8.9 billion in the first quarter of 2010, which ended March 31, according to a report from the Insurance Services Organization and the Property Casualty Insurers of America. Meanwhile, Conning Research’s annual study of the P&C industry balance sheets found their reserve positions strengthened slightly year-over-year in 2009.
The ICO/PCI findings represent a nearly $10 billion swing from Q1 2009’s $1.3 billion loss. The return to profitability came despite a drop in net written premiums of 1.3 percent during the period, to $105.1 billion from $106.5 billion.
“The decline in net written premiums… reflects the ongoing consequences of a once-in-a-generation economic storm,” David Sampson, PCI’s president and CEO, says in a statement “Seasonally adjusted total private-sector employment fell 2.7 percent compared with its level a year earlier, private-sector wages and salaries dropped 1.4 percent, and the average unemployment rate rose to 9.7 percent from 8.2 percent in first quarter 2009. This challenging economic environment reduces demand for insurance.”
The figures are consolidated estimates based on reports accounting for at least 96 percent of all business written by private U.S. P&C insurers.
Gains are attributable to net investment gains, defined as the sum of net investment income and realized capital gains (or losses) on investments. That more than tripled, rising $8.8 billion to $12.6 billion in 2010 from $3.7 billion in 2009.
Net losses on underwriting fell 29.6 percent by $800 million, to $1.8 billion from $2.6 billion. Loss and loss adjustment expenses (LLAE) dropped $4.3 billion to $74.5 billion from $78.8 billion.
“Because of today’s low investment returns and the same long-term decline in investment leverage that helped insulate insurers from the financial crisis, insurers must now achieve better underwriting results just to be as profitable as they once were,” Michael Murray, ISO’s assistant vice president for financial analysis, adds.
Conning found that P&C insurers released $11.6 billion in reserves in 2009, not counting the financial and mortgage guaranty lines. In 2008, the industry released $14.5 billion in reserves for non-financial, non-mortgage lines.
“In our view, the property/casualty industry reserve position has improved slightly in 2009, when compared with our previous analyses,” Stephan Christiansen, director of research at Conning Research & Consulting, says in a statement. “However, some of this apparent improvement may be related to a slowdown in the economy affecting loss reserve development, and there is also a range of possible trends that suggest this improvement could reverse with economic recovery. In light of this, insurers should be thinking now about how an increase in liability trends or a significant spike in inflation in the out years might affect legacy loss reserves.”
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio