The Property Casualty Insurers Association of America has released a study of first half 2010 industry results. The report provides some useful data and benchmarks to evaluate overall trends in the industry. Private U.S. property/casualty insurers’ net income after taxes increased to $16.5 billion in the first half of 2010 compared to $6 billion in the first half of 2009. Policyholder surplus rose 3.7 percent to $530.5 billion at June 30, 2010. The industry posted a combined ratio of 101.7 for the first half of 2010, a deterioration from the combined ratio of 100.8 posted for the first half of 2009.
According to the press release, the data in the report includes at least 96 percent of all business written by private U.S. property/casualty insurers. Here is a brief except from the report which makes a good point regarding the importance of achieving underwriting profitability (a combined ratio of under 100) due to the difficulty of relying on investment income to post acceptable overall profitability in today’s low interest rate environment:
“Insurers’ positive results for first-half 2010 make it easy to overlook the ongoing challenges facing insurers. With the recovery from the great recession remaining agonizingly slow and competition in commercial insurance markets continuing to escalate, top-line premiums remained flat and insurers’ rate of return remained far below benchmarks like the 13.9 percent long-term average rate of return for the Fortune 500,” said Michael R. Murray, ISO’s assistant vice president for financial analysis. “Moreover, insurers’ 6.3 percent annualized rate of return for first-half 2010 was also 3.1 percentage points less than the 9.4 percent average annualized first-half rate of return for the insurance industry based on quarterly data extending back to 1986. And 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. For example, in first-half 1986, insurers achieved a 14.1 percent annualized rate of return with a combined ratio of 108.9 percent. Insurers’ annualized rate of return for first-half 2010 was 7.8 percentage points lower even though the combined ratio was 7.2 percentage points better.”
Disclosure: The author of this article owns shares of property/casualty insurance companies.