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Low investment income leads to decline in insurer profits

Low investment income leads to decline in insurer profits

Property/casualty insurers reported a decline in net income for 2016's first quarter vs. the comparable period a year ago, driven largely by lower investment income, Moody's Investors Service Inc. said.

New York-based Moody's said in a report issued Thursday that the property/casualty insurers it rates reported $4.52 billion in net income in the quarter, down 24% from 2015's first quarter. Investment income declined 16% for the period to $5.03 billion. Moody's also reported a 2% decline in net premiums written to $55.71 billion.

The lower investment income reflects low interest rates and much lower returns from alternative investments, including hedge funds and limited partnerships, said Moody's in its report, “Earnings Decline on Lower Investment Income, Rate Pressure Increasing.”

Discussing the lower premium volume, the report said, “Slow economic growth, re-underwriting efforts and merger effects led to a modest decline in premium volume for our rated portfolio, although some insurers posted good growth.”

The report added, “Property rates on large national and upper middle market accounts continued to decline owing to abundant capacity, a lack of severe catastrophes and a soft reinsurance market.”

Casualty lines reported small rate decreases with the exception of commercial auto, where mid-single-digit rate increases continue, said the report.

Insurers' capital base remains strong, the report said. “Unrealized investment gains increased during the first quarter as equity markets stabilized, interest rates declining and credit spreads narrowed,” it added.