Verisk Unit Unveils Property/Casualty Insurance Revenue Drop

According to a compiled study by ISO, a subsidiary of Verisk Analytics, Inc. VRSK, and the Property Casualty Insurers Association of America, the private U.S. property/casualty insurance industry reported a drastic fall in earnings in the first quarter of 2017 due to a challenging macro-economic environment.

According to the report, net income after taxes for the beleaguered industry decreased 42.2% year over year to $7.7 billion in first-quarter 2017 from $13.4 billion in the year-ago period. Overall profitability (measured by its annualized rate of return on average policyholders’ surplus) fell to 4.4% from 7.9% as the industry faced three catastrophic events in the quarter.

These included severe wind and thunderstorms that led to about $7.3 billion in direct catastrophe losses, the highest first-quarter catastrophe losses recorded since the 1994 Northridge earthquake. The combined ratio for insurers declined to 99.6% from 97.4% for first-quarter 2016. Annualized quarterly investment yield was 3.0% in first-quarter 2017, which was quite low compared with the 3.6% average annualized quarterly yield over the last decade.

However, not everything was gloomy for the industry and there were some encouraging revelations to cheer about. Net written premium growth improved to 4.0% in first-quarter 2017 from 3.2% a year ago, while net investment gains were up $1.2 billion year over year to $14.4 billion. The industry’s surplus reached a new all-time high of $709.0 billion as of Mar 31, 2017.

The industry is expected to absorb these short-term volatilities due to high capitalization and catastrophe losses are not likely to affect its ability to provide coverage and pay claims. However, in order to remain profitable and offer healthy return on investments, the industry requires long-term planning and disciplined underwriting efforts based on robust data and analytical insights. It is at this point when Verisk’s expertise and in-depth knowhow come to the fore.

Using advanced technologies to collect and analyze troves of data, Verisk draws on unique data assets and deep domain expertise to provide predictive analytics and decision support solutions that are integrated into customer workflows. These facilitate its customers to take informed decisions with greater precision, efficiency, and discipline about various risks involved in the businesses. In order to create long-term value for its clients, the company has extended its scalable data and analytic solutions by steadily putting resources into overseas markets. The scalability of its products has further led to highly cash-generative businesses characterized by high net margins and relatively low capital intensity.

However, Verisk has grossly underperformed the Business - Information Services industry with an average year-to-date return of 2.5% compared with a gain of 17.4% for the latter.

Verisk currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include S&P Global, Inc. SPGI and Intertek Group plc IKTSY, both carrying a Zacks Rank #2 (Buy), and National Research Corporation NRCIA, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

S&P Global has a solid long-term earnings growth expectation of 12.3%.

Intertek Group has a healthy long-term earnings growth expectation of 12%.

National Research has beaten earnings estimate twice in the trailing four quarters with a positive earnings surprise of 4.4%.

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