Costs are going up for insurers, and profits are declining. The question is, will they be able to meet their commitments in this time of inflation? Leslie Scism reports on insurance companies’ troubled businesses, writing in The Wall Street Journal:
Big car, home and business insurer Travelers Cos. posted a 41% decline in second-quarter net income, as inflation has continued to drive up costs, including to repair and replace automobiles and pay for medical care of injured people.
Allstate Corp., meanwhile, said inflation would worsen its coming second-quarter quarter results, in a Wednesday announcement that sent its shares down about 7% in early afternoon trading Thursday. Travelers stock was off about 2%.
Both insurers said more premium-rate increases lie ahead in an effort to improve their bottom lines.
Higher catastrophe costs and lower investment income also hurt the year-over-year comparison at Travelers.
The carrier reported net income of $551 million, down from $934 million. Catastrophe costs increased to $746 million pretax compared with $475 million pretax in the prior-year quarter, primarily from severe wind and hail storms across the U.S.
In the year-earlier quarter, Travelers’ investment income was boosted by unusually strong returns in a slice of its investment portfolio with private-equity partnerships. Mostly, insurers invest in high-quality bonds.
Part of the Dow Jones Industrial Average, Travelers is one of the first big property-casualty insurers to report quarterly earnings, and its results are watched closely as a bellwether for others.
Traveler’s net-income decline came even as net written premiums, a commonly used measurement of revenue growth, surged 11% to a record $9.02 billion, thanks to new business and premium-rate increases. Industrywide, insurers have been pushing through substantial rate increases on both business coverages and individual car policies to address inflation.
Increases on the commercial-insurance side date to about 2018, as property insurers reacted to a spate of major weather disasters in 2017. The personal-automobile rate increases are more recent, kicked off by inflation.
More rate increases are likely ahead not just for Travelers policyholders but industrywide, analysts said. In a sign of the widespread cost pressures, car-and-home insurer Allstate cited in its Wednesday announcement “persistent increases in loss costs across coverages” including for parts and labor. It also said that injury claim costs had increased due to factors such as more severe auto accidents.
Action Line: Insurance companies offering annuities and life insurance are also going to come under increased pressure for higher payouts as inflation raises the cost of living. That’s going to raise prices for those products beyond what many customers can handle. The losses in profitability could put those insurers at risk. Don’t rely on an insurance company for your retirement income. When you do that, you own nothing, and they’re happy. When instead you own a portfolio of income-generating investments, you can be happy. If you need help building a portfolio of income-generating stocks and bonds, I would love to help. Please get in touch, and we can talk.
