Property insurers are entering Florida's hurricane season on a surge in profits and record net worth.
Despite payouts for Hurricane Sandy and smaller investment gains, private U.S. property/casualty insurers still made $33.5 billion in profit after taxes in 2012, up from $19.5 billion in 2011. Pretax operating income more than doubled from $15.4 billion to $33.3 billion.
Moreover, the net worth of insurers swelled another $33 billion to hit a record $587 billion by the end of 2012, according to a report released Thursday by the Insurance Information Institute, the Property Casualty Insurers Association of America (PCI) and data cruncher ISO.
The rate of return on average policyholders' surplus — which insurers typically use to assess their financial strength — rose from 3.5 percent to 5.9 percent last year.
Bill Newton, executive director of the Florida Consumer Action Network, said many property insurers should be cutting rates as "they've been making money hand over foot." There should be even more downward pressure on rates, he said, because the cost has fallen for reinsurance, an added layer of insurance that insurance companies buy to cut their risk from catastrophes.
But Newton isn't betting on homeowner rate relief any time soon. "There's no end to the greediness of insurance companies," he said.
Insurance industry backers say the latest figures reflect good financial stewardship, not going overboard with high rates.
"As good as insurers' results for 2012 were compared with their results for 2011, they pale in comparison with long-term norms," said Michael Murray of ISO. Historically, insurers' rate of return has run at an average of nearly 9 percent since ISO began its annual data collection in 1959.
More needs to be done, Murray said, to improve underwriting so insurers have enough money to handle the growing risks they cover, particularly given the time of year.
"While families and local communities continue to recover from Superstorm Sandy, the experts are already predicting that this year's hurricane season will be very active," said Robert Gordon, PCI's senior vice president for policy development and research.
"The horrific damage and suffering caused by Sandy serve as vivid reminders that now is the time for all of us to take the steps needed to minimize the economic damage and human tragedy that will occur when catastrophes strike."
The Florida Legislature has been considering a bill that would let the state-run insurer of last resort, Citizens Property Insurance, raise rates more aggressively than the current 10 percent per year cap. Supporters say it's a way to push policies currently under the state umbrella back to the open market; critics insist homeowners often have no choice but to go to Citizens for coverage.