United States private property / casualty insurers’ net income after taxes rose $1.6 billion to $26 billion in the first half of 2014 from $24.4 billion in the first half of 2013. Correspondingly, insurers’ net income after taxes, policyholders’ surplus – insurers’ net worth measured according to Statutory Accounting Principles – grew to $671.6 billion at June 30th, 2014 from $653.4 billion at the end of 2013.
“The $18.2 billion increase in policyholders’ surplus to a record-high $671.6 billion at June 30, 2014, is a testament to the strength and safety of insurers’ commitment to policyholders. Insurers are strong, well capitalized, and well prepared to pay future claims,” said Robert Gordon, PCI’s senior vice president for policy development and research. “But it only takes one powerful storm to disrupt countless lives and cause tens of billions in damage, and this hurricane season is far from over.”
The increase in insurers’ net income after taxes is the net result of a decline in pretax operating income, an increase in realized capital gains on investments (not included in operating income), and a small reduction in federal and foreign income taxes.
Further adding to the upward trend, Insurers’ realized capital gains on investments rose $3.3 billion to $7.2 billion in the first half of 2014 from $3.9 billion in the first half of 2013.
Conversely, Insurers’ pretax operating income — the sum of net gains or losses on underwriting, net investment income, and miscellaneous other income — fell $1.9 billion to $23.9 billion in first-half 2014 from $25 “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. 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,” said Michael R. Murray, ISO’s assistant vice president for financial analysis.
Moreover, Net gains on underwriting fell to $0.3 billion in first-half 2014 from $2.2 billion in first-half 2013. The combined ratio — a key measure of losses and other underwriting expenses per dollar of premium — deteriorated to 98.9 percent for first-half 2014 from 98.0 percent for first-half 2013, according to ISO, a Verisk Analytics (Nasdaq:VRSK) business, and the Property Casualty Insurers Association of America (PCI).
The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers.
