Profitability in the property/casualty insurance industry reached historic heights during the first quarter of 2015, according to a new report from Verisk Analytics’ ISO and the Property Casualty Insurers Association of America.
Despite challenging obstacles such as a severe winter, slackening economic growth and low interest rates, P/C insurers managed to bring in $18.2 billion in net income during the first part of the year. That exceeds the previous high for a first calendar quarter by $3.8 billion and represents the highest first quarter net income in a generation since ISO began tracking performance in the mid-80s.
The industry also secured a 10.8% return on average surplus, up from 8.4% during the first quarter of 2014.
“The property/casualty insurance industry turned in a strong and profitable performance in the first quarter of 2015,” said Robert Hartwig, an economist and president of the Insurance Information Institute. “Fundamentally, the P/C insurance industry remains quite strong financially, with capital adequacy ratios remaining high relative to long-term historical averages.”
Hartwig attributes the excellent performance to a continued growth in premium, thanks to exposure growth and rate. Additionally, new vehicle sales, residential construction and consistent employment and payroll growth were high enough to offset some of the significant costs from the harsh winter.
Workers’ compensation insurers were particularly benefited by the expansion of payroll and given the increase in jobs, Hartwig anticipates that workers’ comp will “remain the fastest growing major P/C line of insurance in 2015.”
Insurers’ access to capital and capacity for risk also remains strong. As of March 31, 2015, policyholders’ surplus slipped to $671.8 billion – down $3 billion at the end of 2014, but up $10.1 billion from last year’s first quarter.
The ratio of net premiums written to surplus is also at its strongest level in recent history, currently standing at 0.75.
The positive results mean insurance carriers will be financially able to assume more risk in the coming years.
“The bottom line is that the industry is extremely well capitalized and financially prepared to pay very large scale losses in 2015 and beyond,” Hartwig said.
