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AM BEST: U.S. P/C Earnings Down 87% On Underwriting and Investment Losses

Source: AM Best

Posted on 10 Jul 2009

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According to a report by AM Best, the U.S. property/casualty's net income plunged approximately 87% to $1.2 billion in the first quarter of 2009, as challenging underwriting and investment markets continued to drag down results. The year-over-year decline in earnings was due primarily to the severe and prolonged turmoil in the financial markets and the related impact on the industry’s net investment income and realized capital losses.

The following results are for the first-quarter 2009, year over year.

Net premiums written (NPW) fell $4.2 billion, or 3.8%, to $107.6 billion from $111.8 billion.

The industry recorded an underwriting loss of $0.8 billion, driven by continued rate pressure, lower top line growth, weather-related losses and the impact of significant losses reported by mortgage and financial guaranty insurers.

• The combined ratio rose to 100.5 from 99.8.

• The mortgage and financial guaranty segments reported an underwriting loss of $1.9 billion and posted a combined ratio of 220.8, adding approximately two percentage points to the industry’s combined ratio.

• Net investment gains fell $8.7 billion to $4.4 billion, down from $13.1 billion.

• The personal lines segment’s underwriting results deteriorated, with a reported calendar-year combined ratio of 100.7, up from 98.4.

• The commercial lines segment’s combined ratio improved modestly to 101.2, compared with 102.1.

• The U.S reinsurance segment posted a healthy combined ratio of 94.3, compared with 92.9.

In other measures:

• The industry’s policyholder surplus declined $82.0 billion, or 15.5%, to $447.2 billion for the 12 months ended March 31, 2009.

• The annualized after-tax return on equity fell to 0.2% for the 12 months ended March 31, 2009, down from 1.8% for the 12 months ended March 31, 2008.

• As expected, 2009 is shaping up to be another challenging year for the U.S. property/casualty industry, and the unfavorable economic, investment and underwriting environments are expected to continue straining underwriting and operating results through the remainder of the year.