P/C Insurers’ Q3 Earnings Declined 70% From One Year Ago: Moody’s

Property/casualty insurance companies saw their income plummeting significantly in the latest earnings season. Moody’s Investors Service says a group of 23 publicly traded P/C insurers it rates had a whopping 70 percent fall in their third-quarter income compared to one year ago.

$4.1B CAT Losses

The overall income for these 23 companies in the quarter was $1.6 billion. One year ago, the same group reported $5.4 billion in net income. Moody’s explained that lower profitability was caused mostly by catastrophe losses. The results included $4.1 billion pre-tax catastrophe losses, up sharply from $1 billion pre-tax CAT losses reported last year.

The biggest companies in the industry saw their income tumble from one year ago. They include: The Travelers Companies (down $672 million to $333 million income), Liberty Mutual (down $678 million to $111 million loss), Chubb Corp. (down $274 million to $298 million income), AIG’s Chartis (down $367 million to $498 million income), ACE Limited (down $706 million to $31 million loss), Hartford Financial Services (down $340 million to $36 million income), Selective Insurance (down $84 million to $67 million loss), OneBeacon Insurance (down $120 million to $33 million loss), Cincinnati Financial (down $137 million to $19 million income), Harleysville Group (down $46 million to $25 million loss), The Allstate Corp. (down $202 million to $165 million income), The Hanover Insurance Group (down $62 million to $10 million income), State Auto Financial (down $59 million to $59 million loss) and Progressive Corp. (down $111 million to $151 million income).

Composite Combined Ratio at 103%

The group’s composite combined ratio, weighted in accordance with net premiums written by companies, was 103 percent, deteriorating from 95 percent last year. Insurers with the biggest rise include Harleysville Group (up 30 points to 129.5 percent), Hartford Financial Services (up 17 percent to 105.5 percent), Chubb Corp. (up 16 points to 102.6 percent), State Auto Financial (up 17 points to 122.4 percent), Selective Insurance Group (up 16 points to 116.4 percent) and The Travelers Companies (up 14 points to 104.5 percent).

To be sure, Hurricane Irene was not a capital or credit event for the P/C industry. But it still managed to weaken year-to-date net profits which have already been battered by high winter storm and tornado losses. Moody’s also observed that underwriting margins, excluding CAT losses and prior-year development, modestly shrank because of higher accident year loss ratios. On the other hand, recent results benefited from ongoing favorable reserve development, partly offset by lower investment income and modest realized capital losses.

Net premiums written for the group of 23 insurers rose to $50.337 billion. They were up 7 percent from one year ago, thanks to rate hikes in personal lines and increased exposures and rates in commercial lines, primarily workers’ compensation and property.

Pricing Continued to Stabilize

“Pricing continued to stabilize this quarter with most commercial lines insurers reporting flat or slightly increased rates, depending on the line of business,” the report said.

Business retention remained strong: “We expect modest premium growth to continue as companies seek further rate improvement in commercial and personal lines.” But competition for new business is significant. Also, there are signs that some excess and surplus (E&S) business is returning to the E&S market as standard market carriers look to improve account pricing and underwriting margins. Personal line rates continue to increase as they have in the past two years, with homeowners’ policies experiencing mid-to-high single digit rate increases. Rate hikes on personal auto policies were generally in low single digits.

Investment market volatility has led to a downturn in some insurers’ investment income. Weaker investment income reflected low interest rate environment and volatile stock markets, placing added pressure on P&C insurers’ reported results.

Most P/C carriers continued to release reserves, though slightly less than one year ago.