| NEW YORK
NEW YORK May 3 The U.S. insurance industry is
suffering from lower property-casualty premiums, bad weather
claims and interest rates that are still too low to move the
needle, according to earnings reports by some of the largest
players this week.
Although MetLife Inc, Prudential Financial Inc
, American International Group Inc and Allstate
Corp each handily beat expectations for first-quarter
profits, some of their underlying businesses showed signs of
Across the industry, insurers had to pay out higher claims
for catastrophes due to extreme weather conditions.
A single hailstorm in Texas cost Allstate over $250 million
during the quarter, Chief Executive Tom Wilson said in an
interview. Cyclone Debbie, a tropical storm near Australia, also
hurt some insurers. Travelers Companies Inc cited a
variety of weather issues for its 11 percent decline in
quarterly profit when reporting results last month.
UBS analysts cut full-year estimates for several companies
through 2018 this week, citing margins that were "generally
Unusual items also weighed on results. MetLife's bottom line
was hurt by a $602 million net loss on its derivatives
portfolio, as well as higher legal costs and higher effective
taxes in Japan. Profits at AIG were crimped by a change in UK
regulations regarding certain bodily injury claims.
A restructuring at MetLife and a turnaround effort at AIG
are uniquely affecting their businesses as well. MetLife plans
to spin off a retail business called Brighthouse Financial,
pending regulatory approval. AIG has been divesting chunks of
its operation to return capital to shareholders.
Despite the lumpiness in results, analysts and insurance
executives are hopeful that a continued rise in interest rates,
combined with cost-cutting efforts and better business
practices, will bolster profits going forward. AIG, for
instance, reported lower but more profitable net premiums
written in all three of its major business units.
Another bright spot: insurers said their investment
portfolios performed well because of gains on alternative
investments, such as hedge funds, venture capital and private
"Financial markets are better today than they were a year
ago," Sandler O'Neill analyst Paul Newsome said in an interview.
(Reporting by Suzanne Barlyn in New York; Editing by Lauren
Tara LaCapra and Phil Berlowitz)