P/C Insurers Double Q1 Profit on Tax Changes, Growing Economy, Lower Cat Losses

Tax reform, a growing economy and lower catastrophe losses helped U.S. property/casualty insurers more than double their first quarter profit this year.

Insurers’ net income after taxes surpassed $17 billion during the first three months of the year, compared to $7.9 billion in Q1 2017, according to a report by ISO and PCI (Property Casualty Insurers Association of America).

Insurers’ annualized rate of return on average policyholders’ surplus rose to 9.1 percent from 4.5 percent a year earlier.

The industry reported a $4.2 billion net underwriting gain, a huge improvement over the $0.6 billion loss for first quarter 2017. It was the first time since first quarter of 2016 that the industry achieved an underwriting gain.

Robert Gordon, PCI’s senior vice president for Policy, Research and International, said tax reform was a significant driver of the positive results.

“The results were likely impacted by market shifts that are rippling through the industry caused by last December’s federal tax reform,” Gordon said in prepared remarks.

In a word of caution, Gordon pointed out that the industry surplus actually fell by $3.2 billion from the end of last year, though that was due to higher than usual dividend payments to shareholders, plus major dips in unrealized capital gains in insurers’ portfolios. The surplus as of March 31, 2018, was $749.3 billion, compared to $752.5 billion as of December 31, 2017.

ISO President Neil Spector said in prepared remarks that the results were also driven in part by “significantly lower” catastrophe losses. He said that greater reserve releases due to lower cost of prior years’ claims also helped, as well as the growing economy and rising net premiums that come with that trend.

Insurers’ combined ratio improved to 94.6 for first quarter from 99.5 for the same quarter in 2017. Commercial lines insurers’ combined ratio improved 1.4 points to 94.0 while personal lines insurers’ combined ratio improved 7.1 points to 94.2.

Net written premiums rose $21.2 billion to $156.6 billion in first-quarter 2018 from $135.4 billion in first-quarter 2017. ISO/PCI said that net premiums were affected by changes in reinsurance utilization, apparently prompted by the recent U.S. tax reform. The report said many insurers chose to significantly reduce the portion of premiums ceded to their non-U.S. affiliates due to concerns about possible tax implications under the new law.

Net investment income in first quarter 2018 was $11.8 billion, about what it was for the first quarter in 2017.

Sources: ISO/Versisk, PCI

Topics USA Carriers Profit Loss Property Casualty