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First Half 2014 P/C Profits Up, Rate of Return Down Slightly

Net income after taxes (profits) in the property/casualty insurance industry increased by $1.6 billion, or 6.4 percent in the first half of 2014 to $26.0 billion, from $24.4 billion in the year earlier period...
October 9, 2014

Net income after taxes (profits) in the property/casualty (P/C) insurance industry increased by $1.6 billion, or 6.4 percent in the first half of 2014 to $26.0 billion, from $24.4 billion in the year earlier period. Over the same period, overall industry capacity (as measured by policyholders' surplus) increased by $58.1 billion, or 9.4 percent. However, because industry capacity (or capital) increased at a rate faster than that of profits, the industry overall rate of return (profitability) on that capital fell slightly in the first half of 2014 to 7.8 percent, from 8.1 percent in the first half of 2013. The figures were reported by the Insurance Services Office (ISO) in conjunction with the Property Casualty Insurers Association of America (PCI).

I.I.I. CEO and Economist Dr. Robert P. Hartwig noted that the seeming paradox of rising profits but falling profitability was just one of several interesting crosscurrents impacting industry performance in the first half of 2014. Sharply higher catastrophe losses (up 24 percent) and lower investment income (down 1.4 percent), for example, were largely offset by a surge in realized capital gains (up 85.4 percent). Net written premium growth, on the other hand, was largely unchanged over the past year, rising 4.0 percent in the half of 2014, compared to 4.3 percent in the first half of 2013.

The marginal change in profitability is in part a reflection of relatively stable underwriting performance. The industry's combined ratio rose 0.9 points to 98.9 during the first half of 2014 compared to 98.0 a year earlier. Maintaining combined ratios below 100 is absolutely essential in order for the industry to maintain reasonable levels of profitability in a still-challenging interest rate environment.

Read Dr. Hartwig's full analysis here.

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