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SNL Data Shows P/C Insurers Posting Worst 1Q Profit Margins in a Decade

Source: Dow Jones

Posted on 26 May 2011

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According to data from SNL Financial, powerful earthquakes in Japan and New Zealand caused U.S. property-casualty insurers to post their worst first-quarter profit margins in a decade.

Insurers spent nearly $1.03 on claims and expenses for every dollar they collected in premiums, resulting in an industrywide underwriting loss of $3.32billion in the quarter, according to data filed with state regulators and compiled by SNL. Both measures were the worst first-quarter result since 2001.

The results will fuel speculation that insurers will raise prices, especially the ones selling coverage to commercial clients. Business insurers have suffered from years of price declines, but the recent disasters have caused many in the industry to predict a major reversal may be close at hand.

The catastrophes in Japan and New Zealand proved costly for U.S. insurers doing business overseas. National Indemnity, a unit of Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB), reported an underwriting loss of $984.1 million. A unit of reinsurer Transatlantic Holdings Inc. (TRH) lost $456.2 million, SNL said.

Still, not all of the news was bad. The value of policies sold by commercial insurers rose 2.7%, indicating that customers were buying more coverage. The data backs up observations from companies including Travelers Cos. and Liberty Mutual, two large commercial insurers, which said demand for their services is on the rise as the economy improves.

Among the insurers selling coverage to consumers, State Farm, the largest U.S. home and auto insurer, recorded a $342.5 million underwriting loss in the quarter, nearly six times greater than its smaller rivals, SNL said.