A trio of industry associations has teamed to deliver what's likely music to property/casualty insurers' ears—the industry is rebounding in 2010, and solidly on the positive side of the ledger.

According to a joint report issued today by ISO, the Insurance Information Institute (III) and the Property Casualty Insurers Association of America (PCI), private U.S. property/casualty insurers’ net income after taxes saw a dramatic turnaround this year, rising to $8.9 billion in Q1 2010 from -$1.3 billion in Q1 2009. Insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus (or statutory net worth) increased to 6.7% for Q1 2010 from -1.2% for Q1 2009.

The P&C industry returned to profitability despite continuing declines in both written premiums and earned premiums. Net written premiums dropped $1.4 billion (1.3%) to $105.1 billion for the three months ending March 31, 2010, from $106.5 billion for the three months ending March 31, 2009. Net earned premiums declined $2.8 billion (2.7%) to $102.8 billion in Q1 2010 from $105.6 billion in Q1 2009, says ISO and PCI.

P&C insurers’ net investment gains drastically boosted the increases in the industry’s net income and overall rate of return, rising $8.8 billion to $12.6 billion through three-months 2010 from $3.7 billion through three-months 2009.

Another factor contributing to the turnaround is the improvement of underwriting results in Q1 2010 despite continued premium decline. The associations say net losses on underwriting fell by $0.8 billion (29.6%) to $1.8 billion through March 31, 2010, from $2.6 billion through March 31, 2009, as loss and loss adjustment expenses (LLAE) dropped $4.3 billion to $74.5 billion from $78.8 billion.

The combined ratio improved to 101.1% for Q1 2010 from 102.2% for Q1 2009, which ISO and PCI say reflects the decline in LLAE. Additionally, policyholders’ surplus rose $29.2 billion (5.7%) to $540.7 billion at March 31, 2010 from $511.5 billion at year-end 2009 as a result of the $8.9 billion in net income for Q1 2010 and a record $22.7 billion in new funds paid in (new capital raised by insurers).

The figures are consolidated estimates for all private P&C insurers based on reports accounting for at least 96% of all business written by private U.S. P&C insurers, say the organizations.

“This is further proof that home, auto and business insurers are fiscally sound, that we have been strong and stable throughout the economic downturn of the last two years, and that we are able to pay claims to policyholders during their times of need,” says PCI President and CEO David Sampson in the report. “With experts forecasting an active hurricane season, the $102.9 billion increase in policyholders’ surplus from $437.8 billion at the end of first-quarter 2009 to $540.7 billion at the end of first-quarter 2010 provides us all with an extra measure of confidence that insurers will be able to fulfill their obligations to policyholders when the wind blows.”

Sampson's positive outlook was tempered somewhat by remarks from ISO’s Assistant VP for Financial Analysis, Michael Murray, who noted that while the P&C industry isn't being hit as hard by the financial crisis as other sectors of the economy, he believes it’s easy to overlook the ongoing challenges facing insurers.

“Written premiums have declined for an unprecedented 12 consecutive quarters, and the industry’s 6.7% annualized rate of return for first-quarter 2010 was 3.5 percentage points less than the 10.3% average annualized first-quarter rate of return based on data extending back to 1986," Murray said in the report. "Moreover, because of today’s low investment returns and the same long-term decline in investment leverage that helped insulate insurers from the financial crisis, insurers must now achieve better underwriting results just to be as profitable as they once were.”

 

 

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