Private U.S. P&C insurers' net income after taxes fell 12.4% to $55.5 billion in 2014, dropping from its 2013 total of $63.4 billion, according to ISO, a Verisk Analytics Business, and the Property Casualty Insurers Association of America (PCI).
As stated in their "Property/Casualty Insurance Results 2014" report, insurers' overall net profitability, as measured by their rate of return on average policyholders' surplus also dropped to 8.4% from 10.2%.
However, this news comes with a silver lining: The industry's profitability, premium growth, and underwriting ratios all performed better than long-term historical averages, and policyholders' surplus (674.7 billion, about a 3% increase from 2013) reached record levels.
Insurers also have enjoyed nearly five years of uninterrupted growth in written premium after three years of declines, bringing in $496.6 billion last year. Net written premium growth slowed slightly from 4.4% in 2013 to 4.1% in 2014, but it's still above the 1.6% average from the last 10 years, the report says.
Underwriting results
Net gains on underwriting shrank to $12.3 billion in 2014, from $15.2 billion the year before, attributable to the increase in net losses and loss adjustment expenses (LLAE), according to the report, which grew 6.2% to $334.7 billion.
Driven by the growth in LLAE, the combined ratio, as measured by the sum of loss ratio, expense ratio and dividend ratio, slightly weakened to 97.0%, from 96.2% in 2013. However, when excluding mortgage and financial guaranty (MF&G) insurers, the industry's combined ratio came in at 99.4%—slightly better than last year, when also removing MF&G insurers, which are still affected by the mortgages and mortgage-backed securities
Other underwriting expenses increased 2.6% to $138.1 billion, and property losses from catastrophes grew $2.6 billion to $15.5 billion. However, this total ranks far below the $22.7 billion average for direct catastrophe losses during the past 10 years.
"Right now, good underwriting results are a must for insurers. But with much of the improvement in underwriting results for the last two years attributable to moderate catastrophe losses and dependent on continued reserve releases, one has to wonder just how sustainable the net gains on underwriting will be," says Beth Fitzgerald, president of ISO Insurance Programs and Analytic Services, and one of the report's authors.
"Advanced risk models suggest that losses from catastrophic events will continue to increase, and, therefore, those insurers who take advantage of predictive analytics should be better positioned to handle whatever the future might hold," she says.
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