Property Casualty Industry's Net Income Down 91.8 Percent

The U.S. property casualty insurance industry's net income after taxes is down 91.8 percent for the first nine months of 2008 at $4.1 billion; for the same period in 2007 it was $50 billion, according to reports from ISO and the Property Casualty Insurers Association of America (PCI).

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 the first nine months of 2008, down from 13.1 percent from 2007.

Insurers suffered $19.9 billion in net losses on underwriting through nine-months 2008-a $38.2 billion drop from their $18.4 billion in net gains on underwriting through nine-months 2007.

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.

"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," says 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."

PCI attributes the net losses on underwriting to various factors, including weakness in premiums and increases in loss and loss adjustment expenses.

Net written premiums dropped $1.4 billion, or 0.4 percent, to $336 billion through nine-months 2008 from $337.4 billion through nine-months 2007. Net earned premiums rose $1.2 billion, or 0.4 percent, to $330.4 billion for the first nine months of 2008 from $329.2 billion for the first nine months of 2007.

"At negative 0.4 percent for nine-months 2008, net written premium growth was the weakest for the first nine months of any year since the start of ISO's quarterly financial data for the property/casualty industry. The previous record low for nine-month premium growth was negative 0.2 percent in 2005, with nine-month premium growth ranging as high as 13.8 percent in 2002," says Murray.

As premiums declined, overall net loss and loss adjustment expenses (after reinsurance recoveries) jumped $39.7 billion, or 18.1 percent, to $258.8 billion through nine-months 2008 from $219.1 billion through nine-months 2007, according to ISO and PCI. ISO estimates that the net catastrophe losses included in insurers' financial results increased to $21.6 billion in nine-months 2008 from $5 billion in nine-months 2007. Excluding estimated net catastrophe losses, loss and loss adjustment expenses increased $23.1 billion, or 10.8 percent, to $237.2 billion for nine-months 2008 from $214.1 billion for nine-months 2007.

According to ISO's Property Claim Services (PCS) unit, catastrophes occurring in the first nine months of 2008 caused $24.9 billion in direct insured losses to property (before reinsurance recoveries) - more than five times the $4.8 billion in direct insured losses to property due to the catastrophes occurring in the first nine months of 2007 and more than twice the $12.3 billion average for nine-month catastrophe losses during the past 20 years.

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