Deteriorating underwriting and investment results hit the industry hard

The US property/casualty industry’s net income dropped almost 92% in the first nine months of the year as compared with the same period last year, according to new data.

In the first nine-months of 2008 the net income after taxes amounted to $4.1bn, down from $50bn in the first nine-months of 2007.

Deteriorating underwriting and investment results hit the industry hard. The insurance industry’s overall profitability, as measured by its annualised rate of return on average policyholders’ surplus, dropped to 1.1 % for nine-months 2008 from 13.1 % for nine-months 2007.

In the same period insurers suffered $19.9bn in net losses on underwriting, compared with $18.4bn the year before.

And the combined ratio worsened to 105.6 %, according to The ISO and the Property Casualty Insurers Association of America (PCI).

Insurers’ net investment gains fell 40.7% to $28.3bn from $47.8bn in 2007.

Meanwhile, insurers’ federal income taxes declined to $5.1bn from $15.5bn.

The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 % of all business written by private US P&C 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.

‘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,’ commented David Sampson, PCI president and chief executive officer.

He added: ‘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.’