@The Hartford.
Re/insurers, including The Hartford, AIG and Hannover Re, have released mixed Q3 results but still most remain in positive territory for their investment returns.
However, several insurers showed their Q3 2022 investment results down on the same time on 2021.
In a statement, The Hartford announced it saw a lower net income for shareholders in Q3 this year compared to last year. “The Hartford continues to deliver strong financial performance with a 12-month core earnings ROE of 14.3%. In the quarter, top-line and core-earnings growth in Commercial Lines and Group Benefits, along with healthy investment returns, offset the impact of Hurricane Ian and a challenging macroeconomic environment,” said the company’s Chairman and CEO Christopher Swift.
"AM Best said that rising interest rates would continue to have a
negative impact on investment portfolios for insurers."
“Q3 2022 net income available to common stockholders was $333 million, or $1.02 per diluted share, compared with $476 million in third quarter 2021, primarily due to lower net investment income and a change from net realised gains to net realised losses, partially offset by a reduction in excess mortality in Group Benefits and higher P&C underwriting results,” it added.
Net investment income was $487 million, before tax, compared with $650 million in Q3 2021, which the company said was driven by a decrease in income from limited partnerships and other alternative investments (LPs).
Last week, AM Best said that rising interest rates would continue to have a negative impact on investment portfolios for insurers. However, Ken Johnson, Managing Director, AM Best added that they can also have a positive impact on certain reserves, which get discounted at a higher rate.
“Companies will factor the current interest inflationary environment into their product pricing (a positive) and reserving (a negative). However, reserves that are discounted will see a benefit from using a higher rate as well,” he said.
The charge of higher interest rates around the world continued on Thursday with The Bank of England rising interest rates in the UK, which could affect British insurers and investors' earnings in the months to come. "At its meeting ending on 2 November 2022, the MPC voted by a majority of 7-2 to increase Bank Rate by 0.75 percentage points, to 3%," said the Bank's statement. "One member preferred to increase Bank Rate by 0.5 percentage points, to 2.75%, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2.5%."
AIG has reported moderate returns in its Q3 results, despite poor investment returns.
"AIG reported a general insurance income of $750 million, a decrease from prior year quarter due to $228 million of lower alternative investment income."
The company said in its earnings report that it was pleased with the results, which included strong underwriting returns despite losses from Hurricane Ian.
The company reported a general insurance adjusted pre-tax income (APTI) of $750 million, a decrease of $61 million from prior year quarter due to $228 million of lower alternative investment income. This was “partially offset by improvement in underwriting results with 2.4 points of combined ratio improvement, benefiting from continued underwriting discipline and a reinsurance programme.”
The company also reported that base net investment income from its fixed income portfolio had started to see meaningful benefits from the higher interest rate environment.
Elsewhere, German giant Hannover Re reported strong numbers for its investment returns. The company said its AUM stood at €58 billion, with growth of 3.2%, which it said was down to strong operating cash flow that had offset negative effects from asset valuation.
Further, the company said its return on investment from AUM was 2.9%, above target of at least 2.5%. “Ordinary investment income [increased] 30.1%, supported by contribution from inflation-linked bonds, rising reinvestment yields and real estate.”
Other insurers such as New Jersey-based Selective Insurance, showed some lower-than-expected results – the company posted a $63.9m return for the quarter, compared to $93m in the same quarter for 2021.
“The variance was driven by a $4 million after-tax loss in third quarter 2022 compared to an after-tax gain of $34 million in third quarter 2021,” said Selective’s earnings report. “This decline was partially offset by significantly higher income from our fixed income securities portfolio due to higher book yields. For the quarter, the after-tax earned income yield averaged 2.7% for the overall portfolio, and 3.4% for the fixed income securities portfolio.”
