US Property-Casualty Insurers' Net Income Improves in First Quarter

US property-casualty insurers experienced a year-on-year increase in net income after taxes during this year's first quarter, while their combined ratio worsened, according to a new report from data analytics provider Verisk and the American Property Casualty Insurance Association (APCIA).

Insurers' net income after taxes increased to $20 billion in this year's first quarter from $17.9 billion during the same period in 2020, according to the report. Verisk and the APCIA said the insurers' growth was driven in part by an increase in realized capital gains and a modest increase in earned premiums from a year earlier.

While net income increased, the insurers' overall and underwriting profitability deteriorated, however, according to the report. The insurers' combined ratio worsened to 96.1 percent during the first quarter of 2021 from 94.9 percent in the first quarter of 2020. Insurers also saw annualized rate of return on average policyholders' surplus decline slightly to 8.7 percent during the quarter from 8.8 percent a year earlier.

The report noted that this year's first quarter was marked by significant catastrophe losses and loss adjustment expenses (LLAE), especially from winter storms in Texas. Insurers' net catastrophe LLAE of $16.3 billion during the first quarter was a sizable increase from $6 billion during 2020’s first quarter.

The industry's overall LLAE grew 5.3 percent during the first quarter to $111.1 billion, according to the report, while other underwriting expenses rose 1.3 percent to $45.7 billion, and policyholder dividends increased to $1.2 billion. As earned premiums increased 2.3 percent during the quarter, insurers reported $3.3 billion in net underwriting gains for the quarter, a 46.7 percent decrease from $6.2 billion in net underwriting gains during the first quarter of 2020.

"The insurance industry survived severe pandemic challenges in 2020 only to start 2021 with a record freeze in Texas, extreme tornadoes and floods, an unprecedented heatwave in the West fueling intense wildfires that are on track to exceed 2020's record, and expectations of above-average hurricane activity this year," Robert Gordon, APCIA senior vice president, policy, research and international, said in a statement. "Reserve releases for prior years' business accounted for virtually all Q1 underwriting gains, while slowing premium growth was unable to keep pace with spiking losses and loss expenses.

"Industry statutory surplus gained significantly as investments improved in the year following the precipitous decline at the end of Q1 2020," Mr. Gordon continued. "But insurers now face significantly increasing inflationary costs, including medical care, auto repair, building materials, and labor all exceeding the underlying consumer price index. Long-term pandemic liabilities are also still unclear, with continued growth in COVID variants globally and unknown medical costs for long-haul COVID victims."