Strong Q4 investment returns for some insurers shows changing market dynamic

For many but not all US insurers, underwriting income bounced back in 2023, accompanied by strong investment returns.

AXIS Capital announced a net investment gain for 2023 far below its 2022 results.

US insurers’ underwriting income has bounced back, accompanied by strong investment returns in 2023. Most but not all are reporting this trend as results continue to roll in.

Following in the footsteps of pack leader Travelers, more P&C insurers have announced their Q4 2023 and full year 2023 results with generally favourable investment income. While Travelers made a net loss on its investments in 2023, others did better. Some, however, still saw issues as the market recovered from deep volatility due to post-Covid conditions.

For many recovering from the unbalanced results of 2022-23, when underwriting incomes were poor and investment returns kept finances in positive territory, the year end results released over the past week have highlighted a more positive outlook. This trend could be a positive indicator for 2024, with companies also displaying their strong underwriting performance despite heavy natural catastrophe losses from events such as the Hawaii wildfires.

AXIS Capital

Bermuda-domiciled AXIS Capital was an outlier this week when it announced a significant decrease in its year-on-year investment gains for 2023, similar to Travelers but at odds with other companies that saw more positive numbers. AXIS Capital reconciled its lower investment returns via accountancy conditions that it said made the decrease less of a problem than it normally would be.

The company revealed in its preliminary financial results for the year that ended on 31 December 2023, that it made $0.87 million in investment gains for 2023, compared to $5.33 million for 2022. In Q4 2023 it made a loss on its investments of nearly $0.27 million, compared to an increase of $0.50 million for Q4 2022.

“Although the investment of premiums to generate income and investment gains (losses) is an integral part of our operations, the determination to realise investment gains (losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities,” said AXIS’s statement. “Furthermore, many users believe that the timing of the realisation of investment gains (losses) is somewhat opportunistic for many companies.”

For the year that ended on 31 December 2023, the company said its “anticipated reporting net income available to common shareholders [was] $346 million and operating income [was] $486 million, an increase in gross premiums written of $142 million, or 2%”.

It added it expected a combined ratio of 91.8%, compared to 96.3% for the prior year.

“The actions we are taking this quarter address reserve development that is predominantly related to 2019 and older accident years as current economic and social inflation trends impact the overall US Casualty market,” said Vince Tizzio, President and CEO of AXIS Capital. “We undertook a rigorous review that included an examination of trend assumptions, emerging development patterns, new industry data, and current legal trends.”

W.R. Berkley

W.R. Berkley said its full-year net investment income grew 35.1% to a record $1.1 billion.

“Net investment income from our fixed-maturity portfolio increased more than 50% during the quarter and 60% for the year as our portfolio grew and we (re)invested at higher interest rates,” said the statement. “The current rates at which we can reinvest remains higher than our annual book yield, and record operating cash flow positions us well for future investment income growth.”

In Q4 2023, the Connecticut-based company saw net investment income of $313 million compared to $231 million in Q4 2022. Full-year results were up from $779 million to $1.052 billion.

The company’s net written premiums were up 12% from $2.4 billion in Q4 2022 to $2.7 billion in the same period in 2023.

Full-year net written premiums were $10.95 billion compared to $10.0 billion in 2022.

RLI Corp

Chicago-based RLI Corporation said it saw a 40% increase in net investment income in 2023 compared to the previous year.

Net investment income for Q4 increased 14.4% to $32.5 million, compared to the same period in 2022. For the year that ended on 31 December 2023, net investment income was $120.4 million, compared to $86.1 million for the same period in 2022. The investment portfolio’s total return was 6.4% for the quarter and 8.8% for the year.

In Q4, the company recorded an underwriting income of $59.8 million on a combined ratio of 82.7. Its Q4 2023 net earnings were $114.6 million, compared to $97.8 million for the fourth quarter of 2022.

Operating earnings for the fourth quarter of 2023 were $71.1 million compared to $70.5 million for the same period in 2022.

“Continued premium growth across all product segments drove RLI’s fourth quarter performance and supported our 28th consecutive year of underwriting profit," said RLI Corporation President & CEO Craig Kliethermes. "Gross premiums written grew 13% in the quarter. Underwriting and investment income were solid contributors to quarterly operating.”

In Q3 2023, RLI Corporation reported net earnings of $13.5 million, compared to $439.9 million for the third quarter of 2022, which included $437.7 million from the sale of RLI’s investment in Maui Jim, Inc.

In Q2 2023, the company had 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.

For the full year, RLI recorded $173.2 million of underwriting income on an 86.6 combined ratio, compared to $178.2 million on an 84.4 combined ratio in 2022.

“Favourable development in prior years’ loss reserves resulted in a $95.3 million net increase to underwriting income in 2023, which was partially offset by $81.2 million of Hawaiian wildfire and other storm losses,” said the company’s press release.

 “Comparatively, favourable development in prior years’ loss reserves resulted in a $106.5 million net increase to underwriting income in 2022, which was partially offset by $44.4 million of hurricane and storm losses," it added.

Marsh McLennan

Industry giant Marsh McLennan saw consolidated revenue in the fourth quarter of 2023 was $5.6 billion, an increase of 11% compared with the fourth quarter of 2022, it said on Thursday.

"For the full year, we generated 9% underlying revenue growth, 17% adjusted EPS growth and 130 basis points of margin expansion, marking our 16th consecutive year of reported margin expansion," said John Doyle, President and CEO. "In addition, we continued to make substantial organic and inorganic investments in our business with significant acquisition activity in 2023. Our results and investments have us well positioned for 2024."

For the full year 2023, revenue was $22.7 billion, an increase of 10% compared with 2022 ($20.7 billion).

The company saw a loss in investment income of $1 million in Q4, but an overall income of $5 million for the full year. In 2022, its full year investment income was $21 million.