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Economic and financial trends: 2018:Q1

P/C industry results

  • The chart shows: Industry net income after taxes for the first three quarters of the year (adjusted for inflation).
  • The takeaway: Three major hurricanes and the California wildfires, took their toll on profits.

P/C industry net income after taxes*

Billions, 2017 dollars

*Through third quarter. Adjusted for inflation using the BLS CPI calculator, to 2017 dollars.

Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.

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  • The chart shows: The green bars are underwriting profit or loss for the first nine months of each year. The blue bars are net investment gains (investment income net of capital gains or losses) for the same period.
  • The back story: A long-term downtrend in interest rates has been offset by steadily growing investment amounts, yielding generally increasing interest income.
  • The takeaway: Three-quarter-year profits come mainly from net investment gains; underwriting losses in occurred in 7 of the 11 three-quarter-years shown.

Key sources of P/C insurer profits

$ Billions

Data are before taxes and exclude extraordinary items.

Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.

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  • The chart shows: The blue shows net investment income for the first nine months of each year. The green shows realized capital gains or losses for the same period.
  • The takeaway: Net investment income, the heart of insurer profits, has been declining steadily for more than a decade.

Sources of investment gains

Billions

Through third quarter.

Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.

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  • The chart shows: Quarterly yields on Moody’s seasoned AAA bonds.
  • The takeaway: Bond yields have continued to fall and it looks unlikely they will recover much for a while.

Bond yields

 

Note: Recession indicated by gray shaded column.

Sources: https://fred.stlouisfed.org/series/AAA#0 ; National Bureau of Economic Research (recession dates); Insurance Information Institute.

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  • The chart shows: change in the core consumer price index. (Core means excluding food and energy, which fluctuate a lot.)
  • The takeaway: Inflation has been in a narrow range (2 percent or so) since 2012, and it is likely to stay close to that level.

Change* in the core** Consumer Price Index

 

*Monthly, year-over-year, through February 2018. Seasonally adjusted. **CPI less food and energy.

Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.

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