The first nine months of 2013 were positive for private U.S. property/casualty insurers. Their net income after taxes rose to $43 billion in nine-months 2013 from $27.8 billion in nine-months 2012, with insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus increasing to 9.5 percent from 6.5 percent, according to ISO and the Property Casualty Insurers Association of America. Insurers’ pretax operating income grew to $45.7 billion from $31.4 billion in 2012.

“Insurers’ overall results for nine-months 2013 were certainly better than their results for nine-months 2012, with insurers posting their highest annualized rate of return and their best combined ratio through nine months since 2007,” said Michael R. Murray, ISO’s assistant vice president for financial analysis. “Insurers’ strong underwriting results lifted their annualized overall rate of return through nine months to 9.5 percent. Further analysis reveals that relatively benign weather, a sharp drop in U.S. catastrophe losses, and special developments affecting the mortgage and financial guaranty insurance segment account for much of the improvement in insurers’ results.”

The increases were driven by a $16.7 billion swing to $10.5 billion in net gains on underwriting in nine-months 2013 from $6.2 billion in net losses on underwriting in nine-months 2012. The combined ratio improved to 95.8 percent for nine-months 2013 from 100.7 percent for nine-months 2012.

Insurers’ overall results for nine-months 2013 also benefited from a $2.1 billion increase in net investment gains — the sum of net investment income and realized capital gains (or losses) on investments — to $40.4 billion in nine-months 2013 from $38.3 billion in nine-months 2012.

The improvement in underwriting and investment results was partially offset by a drop in miscellaneous other income and higher taxes. Miscellaneous other income fell $1.3 billion to $0.9 billion in nine-months 2013 from $2.2 billion in nine-months 2012 as insurers’ federal and foreign income taxes rose $2.2 billion to $8.7 billion from $6.5 billion.

Policyholders’ surplus grew $37.3 billion to $624.4 billion at Sept. 30, 2013, from $587.1 billion at year-end 2012, largely as a result of insurers’ $43 billion in net income after taxes. “Insurers are strong, well capitalized and well prepared to pay future claims,” said Robert Gordon, PCI’s senior vice president for policy development and research. “Contrary to dire expert predictions that the 2013 hurricane season would be very active, the United States emerged relatively unscathed. But none of us can afford to let good luck lull us into a false sense of security. Catastrophe modeling indicates that events far more devastating than Superstorm Sandy, Hurricane Katrina and the terrorist attack on the World Trade Center may occur in the future. This means that all of us — insurers, policyholders, first responders, and federal, state, and local officials — must stay focused on building economic resiliency and minimizing the human tragedy that we’ll suffer when the worst occurs.”  

The property/casualty industry’s 9.5 percent annualized rate of return for nine-months 2013 was the net result of double-digit rates of return for mortgage and financial guaranty (M&FG) insurers and single-digit rates of return for other insurers. ISO estimates that M&FG insurers’ annualized rate of return on average surplus climbed to positive 35.6 percent for nine-months 2013 from negative 6.3 percent for nine-months 2012. Excluding M&FG insurers, the industry’s annualized rate of return rose to 8.9 percent in nine-months 2013 from 6.8 percent in nine-months 2012.

Underwriting gains (or losses) equal earned premiums minus loss and loss adjustment expenses (LLAE), other underwriting expenses, and dividends to policyholders. Insurers’ net gains on underwriting swung to positive $10.5 billion in nine-months 2013 from negative $6.2 billion in nine-months 2012 as premiums rose and LLAE declined.

Net written premiums rose $14.7 billion, or 4.2 percent, to $363.4 billion for nine-months 2013 from $348.7 billion for nine-months 2012. Net earned premiums rose $13.4 billion, or 4 percent, to $348.3 billion from $334.8 billion.

The property/casualty insurance industry’s consolidated net income after taxes rose to $18.5 billion in third-quarter 2013, up $7.9 billion from $10.6 billion in third-quarter 2012. Property/casualty insurers’ annualized rate of return on average surplus increased to 12 percent in third-quarter 2013 from 7.3 percent a year earlier.

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