@KemperCorp.
US mid-sized insurers have bounced back in their Q3 2023 investment returns from Q3 2022, mostly posting healthier returns. Some larger insurers have already posted record numbers for this quarter.
The overall trend was that the post-Covid economic turbulence of 2022 has largely calmed down in the US, where issues such as supply chains, inflation surges, and interest rate rises have abated from the views of most insurers in recent months.
Fixed income probability, however, remained an issue for some, given the ongoing the effect of these aforementioned inflation and interest rate rises. This uncertainty was likely to continue, with most experts still believing there could be at least one more rise in interest rates by the Federal Reserve (Fed) in the next few months.
The results show the industry in a healthier space, though issues around balancing underwriting and investment profits persist. However, some saw higher interest rates bump up their investment portfolios returns.
Most of the companies that saw an overall profit loss attributed the issues to market conditions in their specialised area. One example was Kemper, which had changes in legislation in some states in which it writes business. Most companies saw benefits of reduced market volatility and published healthier incomes than were seen in 2022.
Some of these companies are highlighted below.
Excess and surplus line specialist insurer Kinsale said its net investment income increased by 95.5% to $27.1 million compared to the third quarter of 2022
This was compared to $13.9 million in the third quarter of 2022, an increase of 95.5%.
Net investment income was $72 million in the first nine months of 2023 compared to $33.5 million in the first nine months of 2022, an increase of 114.5%.
“These increases were driven by growth in the Company's investment portfolio generated largely from the investment of strong operating cash flows and higher interest rates relative to the prior year periods,” said Kinsale’s press release. “The Company’s investment portfolio had an annualised gross investment return of 3.9% for the first nine months of 2023 compared to 2.7% for the same period last year. Funds are generally invested conservatively in high quality securities with an average credit quality of 'AA-' and the weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 2.9 years and 3.5 years at 30 September 2023 and 31 December 2022, respectively.”
The Virginia-based company’s cash and invested assets totalled $2.8 billion at 30 September 2023 and $2.2 billion at 31 December 2022.
Bermuda-domiciled Everest reported a net income of $678 million and operating income of $613 million for Q3.
“We are leaning into the hard reinsurance market, where favourable
conditions and the global flight to quality persist."
The result, it said, was “driven by continued underwriting margin improvement and strong net investment income generation.”
Net investment income improved to $406 million versus $151 million in Q3 2022, driven by strong fixed income and alternative investment returns. For the nine months of 2023, income was at $1.02 billion, compared to $620 million in 2022 for the same period.
“We are leaning into the hard reinsurance market, where favourable conditions and the global flight to quality persist,” said Everest President & Chief Executive Officer (CEO) Juan Andrade. “We are well-positioned for the upcoming January renewals. Supporting the strong underwriting performance of our two businesses, our high-quality investment portfolio continues to deliver outstanding returns, generating over $400 million in net investment income in the quarter, and over $1 billion year-to-date.”
As of 30 September 2023, total invested assets and cash were at $34.6 billion versus $29.9 billion on 31 December 2022.
Louisiana-based specialty workers’ compensation insurer, AMERISAFE, saw a fall in net premiums earned in Q3 2023, compared to the same period in 2022, from $67.8 million to $66.6 million. The overall 2023 premiums had fallen year-on-year for the first three quarters, too – from $205 million in 2022 to $201 million in 2023. This was a drop of 2%.
Net investment income for the quarter was $8.1 million, which was a 16.1% increase on 2022’s $7 million.
Overall, the three-quarter total was $23.2 million, up from $19.6 million, which was an increase of 18.8% year-on-year.
Net realised gains on investment (pre-tax) were $5.1 million, compared to 2022’s $0.585 million.
The pre-tax investment yield for the quarter was 3.4%, up from 2.7%, and 3.3% for Q1-Q3.
As of 30 September 2023, the carrying value of AMERISAFE’s investment portfolio, including cash and cash equivalents, was $948.3 million.
Erie Insurance saw income from investments before taxes at $12.3 million in the third quarter of 2023 compared to a loss from investments before taxes of $0.6 million in the third quarter of 2022.
“Net investment income was $14.6 million in the third quarter of 2023 compared to $5.8 million in the third quarter of 2022,” it said in its statement. “Net investment income included less than $0.1 million of limited partnership losses in the third quarter of 2023 compared to $4.6 million in the third quarter of 2022."
Its net realised and unrealised losses on investments were $2.2 million in the third quarter of 2023 compared to $6.2 million in the third quarter of 2022.
Income from investments before taxes totalled $19.2 million in the first nine months of 2023 compared to $0.3 million in the first nine months of 2022.
Net income for Q3 was $131 million.
The company saw an investment income, net of expenses, of $225 million in Q3 2023, compared to $193 million in 2022. This was a change of 17%, and included a 19% increase in bond interest income and a 5% increase in stock portfolio dividends.
“We believe that the investments we've made put us in a position to take
advantage of opportunities for profitable growth.”
For the nine months to 30 September 2023, the company’s investment income was $665 million compared to $573 million in 2022 for the same period, a change of 14%.
"Non-GAAP operating income for the third quarter was $261 million, up significantly compared to last year's third-quarter, driven by underwriting profits as well as pre-tax investment income that increased 17% for the quarter,” said Steven Johnston, Chairman and CEO.
“We believe that the investments we've made in pricing and risk management expertise, along with our geographic and product diversification over the past decade, put us in a strong position to understand and take advantage of opportunities for profitable growth.”
Connecticut-based W.R. Berkley saw its net income increase by 45.7% to $334 million, up from $229 in Q3 2022.
Gross written premiums increased massively – up to $3.35 billion from $3.08 billion in the same period for 2022.
The company also saw a record quarterly net investment income of $271 million driven by a 59.3% increase in the core portfolio.
“The higher interest rate environment contributed to a meaningful year-over-year increase in investment income,” said the company in its statement. “We anticipate this trend will continue as we benefit from record operating cash flows and reinvest at higher interest rates. Simultaneously, the short duration and high quality of our fixed-maturity portfolio have enabled us to grow book value even as interest rates have risen.”
Bermuda-domiciled Arch Capital Group, which encompasses a re/insurance business and mortgage services, said it had an “excellent” Q3 in its statement, with net income of $713 million.
"The growth in net investment income in the 2023 third quarter primarily reflected the effects of higher interest rates available."
“Excellent underwriting performance from all three of our segments, along with improved investment returns, helped us achieve an impressive 24.8% operating return on equity in the third quarter,” said Marc Grandisson, Arch’s CEO. “Growth in net premiums written across our insurance and reinsurance segments was strong as hard market rates and rising inflation drove client demand for many of our property and casualty products, resulting in an overall 26% year-over-year increase across both segments.”
Pre-tax net investment income was $269 million, compared to the same period in 2022 of $129 million. Q2’s investment results for 2023 were $242 million.
“The growth in net investment income in the 2023 third quarter primarily reflected the effects of higher interest rates available in the market along with growth in invested assets which benefited from strong operating cash flows,” said the statement.
Specialist auto insurer Kemper Corporation reported a net loss of $146.3 million for Q3 2023, compared to a net loss of $74.8 million in Q3 2022.
“Net loss for the third quarter 2023 included a $55.5 million after-tax non-cash charge related to the termination of Kemper’s remaining pension plan obligations, which was previously included within accumulated other comprehensive income (AOCI) and $22.9 million of after-tax net realised losses on investments,” it said.
Net realised investment losses for the quarter were $22.9 million, compared to a loss of $9.6 million in Q2 2022. Overall, for the nine months to 30 September, the loss was $30.3 million compared to the same period in 2022 seeing a $0.3 million gain.
A loss of total revenue was due to lower Specialty P&C earned premiums from a decrease in new business resulting from targeted actions to improve profitability, partially offset by higher average earned premium per exposure from rate increases. The decrease in total revenues was also driven by $40 million of lower Life earned premiums mostly due to the disposition of Kemper Health that was completed in December 2022, and a $23.1 million decrease in total revenues from non-core operations.
“We continue to make progress toward profitability against an ongoing, dynamic operating environment,” said Joseph Lacher, Jr., President, CEO, and Chairman of Kemper. “We are encouraged by the improvements in our underlying performance.”
More results will be released in the coming weeks.
