Jersey City, NJ – Private U.S. property/casualty insurers’ profitability as measured by their annualized rate of return on average policyholders’ surplus increased to 9.4 percent, the best first-quarter result since 10.8 percent in 2015, according to Verisk (Nasdaq:VRSK), a leading data analytics provider, and the American Property Casualty Insurance Association (APCIA). The industry’s surplus grew a record $37.4 billion in the first quarter of 2019, while net written premiums dropped for the first time since the Great Recession.
The surplus increased to $779.5 billion as of March 31, 2019, from $742.2 billion as of December 31, 2018, after dropping $39.3 billion a quarter earlier, as the stock market recovered from a significant downturn at the end of 2018. Net written premiums declined 1.2 percent in first quarter 2019, after jumping 15.7 percent a year earlier; both were mostly the result of one-time increases in net written premiums caused by the changes multiple insurers made to their reinsurance arrangements in 2018. Net earned premiums grew 4.6 percent.
Insurers’ net underwriting gains improved to $5.3 billion in first quarter 2019 from $4.1 billion a year earlier, even though their combined ratio deteriorated to 95.6 percent from 94.6 percent a year earlier. Net losses and loss adjustment expenses (LLAE) from catastrophes declined to $4.8 billion for first-quarter 2019 from $5.0 billion a year earlier and net income after taxes rose to $17.9 billion in first-quarter 2019 from $17.1 billion a year earlier.
“Interest rates remain low and are limiting insurers’ investment income,” said Neil Spector, president of ISO. “To succeed in this challenging environment, they must perfect their core insurance business. Many insurers are using robust data to help inform their underwriting and pricing and relying on artificial intelligence and automation to improve efficiency and reduce costs. These innovations can have a significant impact on insurers’ results. First-quarter 2019 suggests that insurers are on the right track, with their combined ratio well below 100 percent. Their chances to hold on to strong underwriting results through the remainder of 2019 will depend on many factors, including the major natural catastrophes that tend to occur later in the year. At any rate, insurers’ ability to provide coverage is well supported by their expertise and capital.”
“In the first quarter of 2019, solid underwriting discipline and continuing favorable reserve development helped to produce a 95.6 percent combined ratio,” said Robert Gordon, senior vice president for policy, research and international, at APCIA. “As a result, insurers remain in a strong capital position to respond to the potential for higher than normal hurricane and wildfire activity this year. Appreciation in the value of insurers’ investments offset much of the net unrealized capital losses experienced in 2018. However, the industry recovered only about half its stock market losses from the fourth quarter. Overall net written premiums actually dropped 1.2 percent in the first quarter, with net written premiums for traditional insurers writing predominantly commercial lines plummeting from 32 percent growth in the first quarter of 2018 to a decline of 9.2 percent this quarter. Presumably the decline was in part a normalization following last year’s dramatic market adjustment as a result of the Tax Cuts and Jobs Act of 2017.”