Insurers’ Profitability Plunges on Catastrophes

U.S. 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 percent annualized rate of return on policyholders’ surplus, or cushion against unexpected claims, in the nine months through Sept. 30, according to a statement today from the Property Casualty Insurers Association of America. That’s the lowest since the 1.2 percent return in 2008, when the industry faced losses from Hurricane Ike and on investments.

Travelers Cos. (TRV) and Allstate Corp. (ALL) 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 U.S. 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 percent 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, Allstate

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 U.S. 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 percent, the Northbrook, Illinois-based insurer said.

Insurers’ net income plunged in the period 69 percent from a year earlier to $3.2 billion, according to the statement.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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