Overall, the insurance industry has experienced an excellent quarter, leading Clifford Gallant, equity analyst for Nomura Securities International to wonder if this is as good as it gets.
“The P&C industry had a great quarter,” Gallant said. “We typically expect the third quarter to take some storm losses. But this year has been a particularly fortunate year. There were really no U.S. catastrophic events, and even globally the number of insured events have been small. Revenues were up in terms of premiums, positive pricing increases have come through and the industry benefited from reserve releases as well. All around, it was a very good earnings quarter for the industry.”
Insurers with stand out returns, Gallant said, include
“Partner Re had a great quarter. They are a reinsurance company and they had a blow out earnings quarter,” Gallant said. “Their earnings doubled what Wall Street had estimated and it was both low catastrophes and great reserve releases. AIG had a good quarter, but in a time when everyone else beat by a lot, they were sort of inline and that was perceived as a disappointment. And management there kind of backed off some of their long-term aspirational goals. It was a mild disappointment.”
Another is AON, which while a strong performer, Gallant said, likely will benefit from the launch of health insurance exchanges over the long term.
“My view is that even though it was a pretty good quarter, I’m a little bit cautious; this is as good as it gets. As an investor, you can’t expect to see these types of quarters in the future and you need to value the group with a little more caution that extrapolating from the third quarter.”
Gallant’s other caution on the industry is that strong earnings could result in downward pressure on prices as insurers battle for market share.
A number of insurers recently released their financial results for Q3. The following is a compilation of their announcements.
Allstate Corp.
Allstate reported Q3 2013 net income of $310 million, or $0.66 per diluted common share, compared to $723 million, or $1.48 per diluted common share, for the same period last year. The decline was mostly attributable to a $475 million after-tax loss on the disposition of Lincoln Benefit Life Company.
Operating income was $713 million, or $1.53 per diluted common share, compared to $717 million, or $1.46 per diluted common share, for the same period last year.
Profitability improved in for Property-Liability and Allstate Financial compared to the prior-year quarter.The Property-Liability recorded Q3 2013 combined ratio was 90.0, while the underlying combined ratio was 86.9, a 0.9 point improvement from the prior year quarterPre-tax catastrophe losses were $128 million, the lowest since Q3 2002.Review of reserves in discontinued lines and coverages resulted in net reserve strengthening of $86 million.Operating income improved $30 million to $127 million, compared to the same period last year.
"Strong results this quarter reflect the benefits of a broad and comprehensive approach to creating shareholder value," said Thomas Wilson, chairman, president and CEO. "Operating income of $713 million was strong, with the underlying combined ratio better than the goal established for the full year, and progress was made on all 2013 operating priorities.”
Lower catastrophe losses helped lift results, and growth improved as a result of serving consumer segments with differentiated offerings, Allstate said. Allstate auto policies increased compared to the prior year due to improved retention, higher new-business sales and a less adverse impact from actions on homeowners policies.
“We also continued to grow in the consumer segments served by Esurance and Encompass,” Watson said. “Progress was made to balance risk and return and properly deploy capital by the proposed sale of Lincoln Benefit Life, share repurchases, reduction of interest rate risk and execution of our capital management strategy."
The Chubb Corporation
Chubb reported Q3 2013 net income of $541 million, compared to $533 million in the same period last year, and net income per share increased 6 percent to $2.10 from $1.98. Operating income for Q3 was $529 million, compared to $533 million for the same period last year, and operating income per share increased 4 percent to $2.06 from $1.98.
Catastrophes losses for the quarter were $92 million, pre-tax, compared to $17 million for the same quarter last year. The impact of catastrophes on Q3 2013 net income and operating income per share was $0.23 in 2013 compared to $0.04 last year.
The combined loss and expense ratio for Q3 improved to 85.7 percent from 86.3 percent for the same period last year. Excluding the impact of catastrophes, the Q3 combined ratio improved to 82.7 percent in 2013 from 85.7 percent in 2012. Net written premiums increased 4 percent for Q3 2013 to $3.0 billion, and premiums increased 5 percent in the United States; they were flat outside the U.S.
“Chubb had an outstanding third quarter,” said John Finnegan, chairman, president and CEO. “We produced operating income per share of $2.06, the second-highest of any quarter in our history. Our combined ratio was an excellent 85.7%, reflecting the impact of higher rates and strong underwriting performance in all our business units as well as relatively low catastrophe losses. During the quarter, the market tone in the U.S. remained firm in both our standard commercial and specialty lines business units, where we achieved high-single-digit renewal rate increases and higher retention levels.”
EMC Insurance Group Inc.
EMC reported Q3 2013 operating income of $6,545,000, or $0.50 per share, compared to $8,436,000, or $0.65 per share, for the same period last year. Net income for Q3 2013, including realized investment gains and losses, was $7,200,000, or $0.55 per share for the quarter, compared to $8,321,000, or $0.65 per share, for the same quarter last year.
“Operating results for the first nine months of the year are strong, and our updated operating income projection for the year exceeds our expectations at the beginning of the year,” said Bruce Kelley, president and CEO. “As a result, we are increasing our 2013 operating income guidance.”
Highlights from the report:
Operating Income Per Share $0.50
Net Income Per Share $0.55Net Realized Investment Gains Per Share $0.05Catastrophe and Storm Losses Per Share $0.75Large Losses Per Share $0.29GAAP Combined Ratio 100.8 percent
EMC reported that premiums earned increased 8.9 percent to $132,363,000 for Q3 2013, from $121,545,000 for the same period last year. In the property and casualty insurance segment, premiums earned increased 9.9 percent, attributable mostly to rate increases on renewal business and growth in insured exposures on existing accounts. Premiums earned in the reinsurance business increased 5.9 percent.
Catastrophe and storm losses were $15.07 million, or $0.75 per share after tax, for Q3 2013, compared to $10.82 million, or $0.55 per share after tax, for the same period last year; catastrophe and storm losses accounted for 11.4 percentage points of the combined ratio, which is below the Company’s most recent 10-year average of 14.7 percentage points, but higher than the 8.9 percentage points experienced in the third quarter of 2012, EMC said.
Health Net Inc.
Health Net report Q3 2013 net income of $66.8 million, or $0.83 per diluted share, compared with $18.0 million, or $0.22 per diluted share, for the same period last year. The Western Region Operations and Government Contracts segments produced combined Q3 2013 net income of $0.83 per diluted share, compared with $0.38 per diluted share in the same period last year.
Total revenues for Q3 2013 was $2.8 billion and flat compared to the same period last year. Health plan services premium revenues for Q3 2013 also were flat at $2.6 billion compared to the same period last year. Expenses for Health plan services decreased 3.7 percent to $2.2 billion in Q3 2013 from $2.3 billion for the same period last year.
“We continue to achieve significant milestones in our preparations for the compelling opportunities in front of us in 2014 and beyond. With this in mind, we know that it is important that we continue to produce consistent operating performance in 2013,” said Jay Gellert, CEO. “We believe that our 2013 third quarter results demonstrated that we are on track to do so.”
Prudential Financial Inc.
Prudential reported Q3 2013 net income of $981 million, or $2.07 per common share, compared to a net loss of $627 million, or $1.34 per common share, for the same period last year. After-tax adjusted operating income for its Financial Services Businesses was $1.393 billion, or $2.94 per common share, for the quarter, compared to $751 million, or $1.59 per common share, for the same quarter last year.
Prudential acquired The Hartford’s individual life insurance business on Jan. 2, 2013, and results include that business from the date of acquisition.
Highlights from the report:
Pre-tax adjusted operating income up $919 million or 90 percent from year-ago quarter.Earnings from operating divisions, before impact of reserve refinements and related items driven by annual actuarial reviews, up 27 percent.Retirement account values reach record-high $312.5 billion at September 30 for a 24 percent increase from a year earlier; gross deposits and sales for the quarter of $10.5 billion; net additions $3.4 billion reflecting positive net flows in Institutional Investment Products and Full Service.Asset management institutional and retail net flows, excluding money market, total $2.7 billion; segment assets under management $848.1 billion at September 30, up 9 percent from a year earlier.Individual annuity account values $147.4 billion at September 30, up 11 percent from a year earlier; gross sales for the quarter of $2.4 billion, net sales $540 million.U.S. individual life annualized new business premiums $165 million, compared to $98 million a year ago; expanded distribution from Hartford Life acquisition contributes $53 million to current quarter sales.International insurance earnings, before reserve refinements and related items driven by annual actuarial reviews, up $105 million or 14 percent from year-ago quarter.
“Our strong results for the third quarter and first nine months reflect solid underlying performance across our businesses,” said John Strangfeld, chairman and CEO. “In the U.S., our retirement solutions and investment management businesses are continuing to benefit from growth of our base of quality business, with the landmark pension risk transfer transactions we completed late last year contributing to our results. Individual Life results are benefiting from the contribution of the business we acquired from The Hartford in January, with the integration well on track and expense synergies emerging consistently with our expectations. Our international businesses are performing well, continuing to build our franchise through consistent focus on serving clients’ lifetime financial security needs.”
