Despite Hurricanes, P&C Companies Still Increase Profits

Last updated on May 13th, 2019 at 02:36 pm

Property and casualty insurers in the United States suffered a $4.2 billion underwriting loss from last year’s hurricanes, according to Weiss Ratings Inc.

The losses include those from Hurricane Katrina, which devastated New Orleans and the Gulf Coast.

However, thanks to increased returns from investments, the industry still managed to increase its

profits by 13 percent, according to Weiss.

"Property and casualty insurers transferred much of their risk to re-insurers who now bear the burden of the insured losses," said Melissa Gannon vice president of Weiss Ratings Inc. "Nonetheless, with more intense hurricane seasons projected, both primary insurers and re-insurers face an uphill battle to improve underwriting performance, leaving many consumers in high-risk areas with little relief from rising premiums."

Insurance companies in Wisconsin, such as Badger Mutual, West Bend Mutual and Acuity, which concentrate on the Midwest and do not serve the coastal areas, have not been affected much by the hurricanes, executives with those firms say.

Re-insurance companies, which insure the insurance companies, have not been able to spread the costs from the hurricane damages to insurance companies that serve the Midwest because of the competitive environment here.

Jupiter, Fla.-based Weiss Ratings Inc. is an independent provider of ratings and analyses of financial services companies, mutual funds and stocks.

The underwriting loss from the hurricanes erased the property and casualty insurance industry’s record underwriting profit of $4.6 billion in 2004, according to Weiss.

However, property and casualty insurers reported a 17.2 percent rise in investment income, up from $42.4 billion in 2004 to $49.7 billion in 2005, which helped compensate for the underwriting loss, the Weiss report says. Rising interest rates and the solid performance of the equity market led to the rise in investment income. In addition, capital gains for property and casualty insurance companies increased by 31.6 percent, up from $8.9 billion in 2004 to $11.7 billion in 2005.

As a result, despite the losses from the hurricane damages, property and casualty insurers earned $46.7 billion in 2005 and increased profits by 13 percent. However, that growth rate was much less than the 28 percent increase in net income of property and casualty insurers in 2004.

Two consecutive hurricane seasons with significant losses have slowed the growth of the property and casualty insurance industry’s capital and surplus, which rose by 3.9 percent in 2005 to $515 billion, compared with an 11.9 percent increase in 2004.

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