Premium Income Pads P&C Insurer Profits – But Firms Make Billions from Investments, Too

If you own a car or a home, you most likely have a Property and Casualty (P&C) insurance policy to protect those assets. And as you might expect, the insurers writing those policies make a profit on the difference between the premiums you pay and the claims they pay.

But that’s not the whole story. P&C companies also make tens of billions of dollars on investments of all types. So this week, I want to delve deeper into the mystery of just how insurers generate profits, and what the latest data says about the size of those earnings.

The first and most straightforward way to profit as an insurer is by taking in more in premiums than you pay out in claims. This way of making money requires careful and well-balanced underwriting practices and risk management. Clearly, every company wants to take in more than they pay out, and last year, insurers made $603 billion in premium income.

The second way for an insurer to profit is to invest the available cash received from premiums. They have to do it just as carefully as they write their policies, balancing the potential risk and reward. Our data shows that insurers made $53 billion from their investments last year.

In the table below, you’ll find the top ten insurers with the most investment income for 2016. Those companies made anywhere from $1 billion to just over $6 billion in such income. In fact, some of these companies made more money from investments than from actual insurance policies.

P&C Insurers with Most Investment Income in 2016

As you can see in the table above, some insurers are heavily focused in investing. That includes National Indemnity Co., a Berkshire Hathaway subsidiary that took the top spot with $6.4 billion in investment income versus only $224 million earned from premiums.

On the other hand, you have firms like State Farm Mutual Automobile Insurance. It earned $2.8 billion from investments, but a much greater $36.2 billion from premium income.

The bottom line is that some insurers make a lot of money from investments as opposed to their actual insurance policy-writing business. However, the overall P&C industry figures show that premium income is the leading form of income for most at the moment.

Because things can change, be sure to check out our latest P&C ratings to see if your insurer was upgraded or downgraded. And while you’re at it, take a look at the investment performance of insurers by using the parent insurance company’s stock tickers here.

Think Safety,

Gavin Magor

Insurance Insights Edition, By Gavin Magor, Senior Financial Analyst Gavin has more than 30 years of international experience in credit-risk management, commercial lending and insurance, banking and stock analysis and holds an MBA. Gavin oversees the Weiss ratings process, developing the methodology for Weiss’ Sovereign Debt and Global Bank Ratings. Gavin has appeared on both radio and television, including ABC and NBC as an expert in insurance, bank and stock ratings and has been quoted by CNBC, The New York Times, Los Angeles Times, and Reuters as well as several regional newspapers and trade media.