Verisk Analytics: P/C Insurers Report $1.5B Net Underwriting Loss in First Half of 2016

Private U.S. property/casualty insurers reported a $1.5 billion net underwriting loss in the first half of 2016-the first year-to-date net underwriting loss in more than three years-and saw their net income after taxes drop to $21.7 billion in first-half 2016 from $31.0 billion a year earlier, according to ISO, a Verisk Analytics (Nasdaq:VRSK) business, and the Property Casualty Insurers Association of America (PCI).

Insurers’ combined ratio deteriorated to 99.8 percent in first-half 2016 from 97.6 percent in first-half 2015, and net written premium growth slowed to 3.0 percent in first-half 2016 from 4.1 percent a year earlier. Net investment income dropped to $22.1 billion in first-half 2016 from $23.4 billion a year earlier, and realized capital gains decreased to $4.4 billion from $8.2 billion, resulting in $26.5 billion in net investment gains for first-half 2016, down $5.1 billion from a year earlier.

Direct insured property losses from catastrophes striking the United States totaled $13.5 billion in first-half 2016, up from $10.7 billion a year earlier and above the $11.6 billion average for first-half direct catastrophe losses for the past ten years.

“The industry’s results continued to worsen in the first half of the year, as insurers reported a first-half net underwriting loss for the first time since 2012 and saw their combined ratio exceed 99 percent,” said Beth Fitzgerald, president of ISO Solutions. “Catastrophe losses remained higher than in previous years. Texas was hit by a hailstorm that has been described as the costliest in the state’s history, and several states in the central United States experienced severe thunderstorms. With interest rates and investment yields remaining low, insurers must find ways to improve operational efficiency while still providing valuable coverage for their policyholders.”

“The underperformance of auto insurance continues to drag down industry underwriting results. Industry statistics we’re monitoring indicate that direct personal and commercial auto liability losses each spiked over 11 percent from the first half of 2015, significantly outstripping premium growth. The increases were a significant contributor to the worsening combined ratio, with personal lines insurers deteriorating from 100.0 to 103.1, and commercial lines insurers from 94.6 to 96.0. As a result, while overall industry surplus rose slightly to a record high, once adjusted for inflation, real surplus actually declined and insurers’ return on average surplus dropped below the long-term average,” explained Robert Gordon, PCI’s senior vice president for policy development and research.

Second-Quarter Results

Insurers’ net income after taxes fell to $8.3 billion in second-quarter 2016 from $12.9 billion in second-quarter 2015, and their combined ratio worsened to 102.1 percent in second-quarter 2016 from 99.4 percent a year earlier.

Their annualized rate of return on average surplus dropped to 4.9 percent in second-quarter 2016 from 7.7 percent a year earlier.

Net written premiums rose 2.9 percent in second-quarter 2016 compared with 4.5 percent in second-quarter 2015.

Source: Verisk Analytics