If you compare profitability and net investment gains for insurers in 2014 and 2015, it appears that not much has changed in property/casualty insurance results.
Profitability—as measured by insurers’ rate of return on average policyholders’ surplus—remained at about 8.4 percent, and net investments gains remained at approximately $56.6 billion.
But if you look at the growth of insurers’ net written premiums, you’ll see a different story. Insurers’ net written premium growth slowed to 3.4 percent in 2015 from 4.2 percent a year earlier.
As I mentioned in my column last month, insurers are facing serious challenges ahead—many of which are evident in a press release and report on insurer results that we published with the Property Casualty Insurers Association of America (PCI).
While insurers saw their net income after taxes grow to $56.6 billion in 2015 from $55.9 billion in 2014, their underwriting results—as measured by their combined ratio and net underwriting gains—deteriorated. Insurers’ combined ratio jumped to 97.8 percent in 2015 from 97.0 percent a year earlier, and their net underwriting gains declined to $8.7 billion from $12.2 billion.
A $3.6 billion reserve charge taken by a major insurer in the fourth quarter of 2015 significantly contributed to the decline of underwriting results. But even without the reserve charge, the combined ratio for 2015 would have deteriorated, albeit slightly, to 97.1 from 97.0 for 2014 and 96.2 for 2013.
It’s too early to tell whether the deterioration of underwriting results this past year starts a trend, but we are seeing heightened loss ratios for auto liability—both personal and commercial. Likely factors behind the loss ratio increases for automobile insurance include economic growth and low gas prices, which are putting more drivers on the roads, and increases in automobile repair costs.
At the same time, insurers continued to face a difficult investment environment. Their annualized investment yield during 2015 was just 3.2 percent, virtually unchanged from 2014 but one-third less than the 5.1 percent long-term average (1960–2015) and significantly below the 3.8 percent average annual yield for the last ten years.
As long as yields remain at those levels, insurers’ underwriting results will determine their profitability.
That’s why the decrease in net written premium growth could be a troubling sign for the industry. In 2015, net written premium growth slowed to 3.4 percent after hovering for three consecutive years at around 4.2 percent.
At times like these, each insurer needs to excel in underwriting profitability. That’s why we’re working hard at ISO to develop products that help insurers make the best possible underwriting decisions. For instance, we recently enhanced our Electronic Rating Content (ERC) Suite with new features that make it easier for insurers to identify and apply the latest rating information from ISO about today’s rapidly changing world of risk. We’re also developing other products and services to help insurers manage risk.
Learn more by visiting and subscribing to our Between the Lines newsletter. Also stay tuned for a number of events this year where ISO professionals will be speaking about emerging issues in insurance and will be available to meet with you.
If you have any questions, please feel free to contact me at Beth.Fitzgerald@verisk.com or 201-469-2822.