Q2 insurance results showing strong investment returns
Mixed underwriting bag for first swath of Q2 results insurers drown out investment returns showing strong growth for P&C insurers of all sizes.
Andrew Putwainposted on Wednesday, July 26, 2023
The end of Q2 has unleashed a flurry of re/insurers’ results for the US market, which point to several trends affecting the market.
Largely, the major players are seeing good growth but for smaller P&C insurers catastrophe (CAT) losses are mounting, eating into profitability, similar to the situation in Q1. However, almost all insurers that have released results are recording solid performances from their investment income.
Last week, Travelers became the first major US insurer to announce its results, which showed that income from fixed income investments buffered its heavy underwriting losses, partly due to a doubling of CAT costs.
With many of the insurers reporting high investment incomes, these results could point to a mixed bag for the US economy as it – like other developed economies – teeters in and out of recessionary conditions, due partially to high inflation.
So far this week, US giant Chubb have been the largest to announce their results. They saw a pre-tax net investment income of $1.14 billion, up 28.9%, and the company’s adjusted net investment income was $1.24 billion, up 30.6%, which it said were both records.
“Our investment income run rate will continue to grow as we reinvest cash flow at higher rates and compound income."
“Book value was unfavourably impacted by after-tax net realised and unrealised losses of $1.23 billion in the company's investment portfolio,” the company said in its statement.
Overall, Chubb’s net income was $1.79 billion, up 50.7%, and its core operating income was at $2.04 billion, up 13.9%. “For the six months [of H1 2023], net income was $3.69 billion, up 17.2%, and core operating income was a record $3.89 billion, up 12.9%. P&C net premiums written of $10.68 billion were up 9.8%, or 10.4% in constant dollars,” it said.
“Our investment income run rate will continue to grow as we reinvest cash flow at higher rates and compound income,” said Evan Greenberg, Chairman and CEO of Chubb Limited.
Part of this income was in the Life Insurance arm of the company, which saw segment income of $254 million, up 140.3%, driven “substantially by International Life insurance as a result of the acquisition of the Cigna Asian business and Huatai, which had higher investment income”, said the statement.
“The investment income from private equity partnerships was $184 million and $111 million for the six months ended June 30, 2023, and 2022, respectively.”
“The amortisation of the fair value adjustment on acquired invested assets was $5 million and $30 million for the six months ended 30 June 2023 and 2022, respectively,” Chubb’s statement said. “The investment income from private equity partnerships was $184 million and $111 million for the six months ended 30 June 2023 and 2022, respectively.”
Elsewhere, Illinois-based RLI Corporation have released their results, which showed a second quarter 2023 net earnings of $77.7 million, compared to a net loss of $2.2 million for the second quarter of 2022. This included a 55.8% increase in net investment income to $28.8 million, compared to the same period in 2022.
“The investment portfolio’s total return was 1.1% for the quarter and 3.9% for the six months ended June 30, 2023,” said its press release.
New-Jersey-based Selective insurance was another of the early announcers, which also saw cat losses hit its profits. “Through the first half of the year, our expected operating Return on Equity (ROE) of 12.2% was in line with our 12% target and we are on track to meet our full-year guidance of a 96.5% combined ratio and $300 million of after-tax net investment income,” said Chairman, President, and CEO John Marchioni.
Like Travelers, they also took a hit from cat losses.
“Nineteen named events impacted our results. Most storms were in our Midwest and East Coast footprint states.”
The company said it expected to have pre-tax net cat losses totalling approximately $100 million. “Each underwriting segment was impacted, with $63 million of pre-tax net catastrophe losses in Standard Commercial Lines, $21 million in Standard Personal Lines, and $16 million in Excess and Surplus Lines,” said Selective’s statement. “Nineteen named events impacted our results. Most storms were in our Midwest and East Coast footprint states, and none were large enough to attach to our catastrophe reinsurance treaty.”
Further results will be out in coming weeks.