The first nine months of 2014 saw policyholders’ surplus for the U.S. property/casualty insurance industry reach record levels. At the same time, net income after taxes declined substantially and overall profitability took a noticeable dip.

As well the annualized rate of return on average policyholders’ surplus declined, and the industry-wide combined ratio worsened.

Those findings stem from an industry assessment conducted by ISO, a division of Verisk Analytics, and the Property Casualty Insurers Association of America. They reflect mixed perspective about where the industry stands.

Related: P/C Insurers Face Challenge to Match 2013 Results in 2014

Michael Murray, ISO’s assistant vice president for financial analysis, said insurers’ deterioration in underwriting results and overall profitability is cause for concern.

“The deterioration in underwriting results raises questions about the quality or sustainability of earnings,” Murray said in prepared remarks. “The prospect that underwriting results could deteriorate as we close the books for 2014 and move through 2015 is a bit troubling because insurers’ overall rate of return is already subpar compared with long-term historical norms and because insurers now need much better underwriting results just to be as profitable as they were in the past.

Specifically, the p/c industry’s net income after taxes for the first nine months of 2014 came in at $37.7 billion, down $5.1 billion from $42.7 billion generated over the same period in 2014. Tellingly, insurers’ overall profitability as determined by their annualized rate of return on average policyholders’ surplus landed at 7.6 percent, down from 9.4 percent from the 2013 January to September period.

As well, the drop in insurers’ pretax operating income stemmed from a decline in underwriting results. ISO/PCI said net gains on underwriting dropped to $4.3 billion from January through September 2014, down from $10.3 billion over the same period in 2013.

The combined ratio came in at 97.7, an uptick from 95.8 as compared to the first nine months of 2013.

One thing that remained steady: net investment income. For both the first nine months of 2013 and 2014, it came in at about $34.3 billion.

Robert Gordon, PCI’s senior vice president for policy development and research, noted that policyholders’ surplus hit a record-high $673.9 billion as of Sept. 30, 2014, up by $20.5 billion over the same period last year. He said that the result is “a testament to the strength and safety of insurers’ commitment to policyholders.”

“Insurers are strong, well capitalized, and well prepared to pay for future claims,” he said in prepared remarks.

At the same time, Gordon said a major storm or catastrophic event could make a big difference, so insurers, homeowners, businesses and government officials “must remain focused on risk management, disaster readiness, loss mitigation, and building economic resiliency to minimize the human tragedy caused by future catastrophes.”

Other P/C  industry results from January through September 2014:

  • Net written premiums rose to $377 billion, a nearly 4 percent hike over the same nine-month period in 2013
  • Net earned premiums rose to $362.3 billion, up 4.1 percent from $347.9 billion generated in the January through September 2013 period.

Source: Verisk/ISO, PCI