P/C Industry Profits Dramatically Down through September

The U.S. property/casualty insurance industry’s net income after taxes through nine-months 2008 amounted to $4.1 billion, down 91.8 percent from $50 billion through nine-months 2007. The insurance industry’s overall profitability as measured by its annualized rate of return on average policyholders’ surplus (or statutory net worth) dropped to 1.1 percent for nine-months 2008 from 13.1 percent for nine-months 2007, as underwriting results and investment results deteriorated. 
 
Insurers suffered $19.9 billion in net losses on underwriting through nine-months 2008 — a $38.2 billion adverse swing from insurers’ $18.4 billion in net gains on underwriting through nine-months 2007. The combined ratio — a key measure of losses and other underwriting expenses per dollar of premium — worsened to 105.6 percent in the first nine months of this year from 93.8 percent in the first nine months of 2007, according to ISO and the Property Casualty Insurers Association of America (PCI). 
 
Insurers’ net investment gains — the sum of net investment income and realized capital gains (or losses) on investments — fell 40.7 percent to $28.3 billion for nine-months 2008 from $47.8 billion for nine-months 2007. 
 
Partially offsetting the deterioration in underwriting and investment results, insurers’ miscellaneous other income rose $1.7 billion to $0.7 billion through nine-months 2008 from negative $1 billion through nine-months 2007, and insurers’ federal income taxes declined to $5.1 billion from $15.5 billion. 
 
The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers. 
 
“Insurers’ results through nine-months 2008 fell victim to a ‘perfect storm,’ as the downturn in the economy, the crisis roiling the financial system, softening in insurance markets, and weather-related catastrophe losses combined to take a toll on underwriting and investment results,” said Michael R. Murray, ISO’s assistant vice president for financial analysis. “Insurers’ 1.1 percent annualized rate of return for nine-months 2008 was the second-lowest nine-month annualized rate of return since the start of ISO’s quarterly data in 1986 and 7.8 percentage points below insurers’ 8.8 percent average nine-month rate of return during the past 23 years. But the recession and credit crisis led to disproportionate deterioration in results for mortgage and other financial guaranty insurers. ISO estimates that mortgage and financial guaranty insurers’ annualized rate of return fell to negative 130.6 percent for nine-months 2008 from 14.1 percent for nine-months 2007. Excluding mortgage and financial guaranty insurers, the insurance industry’s annualized rate of return declined to 4.2 percent for nine-months 2008 from 13.1 percent for nine-months 2007, as the industry’s net income fell 68 percent.” 
 
“That insurers remained profitable through nine-months 2008 despite multiple challenges is both a testament to their risk management and a sign that the property/casualty insurance industry remains well able to fulfill its obligations to policyholders,” said David Sampson, PCI president and chief executive officer. “Unlike the once iconic Wall Street institutions and banks brought down by the financial crisis, property/casualty insurers’ conservative investment practices and modest financial leverage have thus far assured that insurers have ample resources to pay claims. Effective state solvency regulation and the state insurance guaranty fund system are two more reasons that consumers and policymakers can rest assured that insurance remains a strong and stable cornerstone of the economy.”  
 
For more data, visit http://www.pciaa.net.