US property and casualty insurers’ profitability fell to the lowest level since 2008 as losses from natural disasters exceeded gains in sales and investment income.
Insurers posted a 1.9 per cent annualised rate of return on policyholders’ surplus, or cushion against unexpected claims, in the nine months through September 30, according to a statement today from the Property Casualty Insurers Association of America. That’s the lowest since the 1.2 per cent return in 2008, when the industry faced losses from Hurricane Ike and on investments.
Travelers Cos and Allstate Corp are among insurers raising prices for coverage to boost shareholder returns after claims from storms and low interest rates pressured results. Policy sales rose to $115.7 billion in the third quarter from $111.1 billion a year earlier, according to PCI.
The increase in sales “was blunted somewhat by deteriorating underwriting results,” Robert Gordon, PCI’s senior vice president for policy development and research, said in the statement. “Current low interest rates and the Federal Reserve’s pledge to keep interest rates low for some time to come continue to put pressure on insurers’ investment income.”
Catastrophes, including Hurricane Irene, which made landfall in North Carolina in August then lashed the US East Coast with rain and winds, cost the industry $9.5 billion in the third quarter. That compares with $2.9 billion a year earlier.
Net investment income rose 1.4 per cent industrywide to $11.7 billion in the third quarter, according to the statement, which was jointly produced with ISO, a unit of Verisk Analytics Inc. (VRSK), and the Insurance Information Institute, a trade group.
Travelers Chief Executive Officer Jay Fishman said at an investor conference this month that his company is driving “for improved rate and terms” across its business. Tornadoes in April and May wiped out the New York-based insurer’s second- quarter profit. Irene contributed to a drop in net income in the third quarter.
Allstate, the largest publicly traded US home insurer, said in October it received approval from regulators to boost rates for its main line of homeowners’ coverage in 15 states in the third quarter. The premium increases averaged about 14 per cent, the Northbrook, Illinois-based insurer said.
Insurers’ net income plunged in the period 69 per cent from a year earlier to $3.2 billion, according to the statement.
