Harsh winter drives down 1st-quarter property/casualty insurers' profitability: Report

Central Park in New York during the Polar Vortex earlier this year.

Increased catastrophe losses driven by the past winter's severe weather helped drive down first quarter property and casualty insurers' profitability 39.8% to $13.9 billion, according to an A.M. Best Co. Inc. first quarter financial review of the sector issued Monday.

Increased first quarter catastrophe losses of $1.8 billion compared with $772 million during the same period last year dragged heavily on results, which Best blamed mainly on the winter's polar vortex, according to “Polar Vortex Chills Industry Profits; Policyholders' Surplus Still Rises.”

“Losses related to the polar vortex — which brought record and near-record cold temperatures across much of the northern United States and pushed snow and icing conditions into much of the South — account for much of this increase,” Best said in its report.

Underwriting continued to be profitable in the face of the increased catastrophe losses as the sector posted a first quarter combined ratio of 96.4% compared with 92.7% in the year-ago period. Net written premiums grew 2.7% to $122.6 million for the first quarter compared with growth of 4.6% during the first quarter of 2013.

“While companies continue to report increasing rates and exposures, the pace of that growth has dropped significantly,” Best said in the report.

After-tax return on equity fell to 2.1% for the quarter from 3.7% during first quarter 2013 while policyholders' surplus grew 9.8% to a record $671.8 billion at the end of the quarter, Best said.

Net investment income declined 15.2% to $11.2 billion from $13.2 billion in the year-ago period as “Persistently low interest rates continue to take a toll on the industry's investment returns,” said Best in the report.