From the January 9, 2012 issue of National Underwriter Property & Casualty • Subscribe!

2011 9-Month Results Show Weakening Underwriting Performance

The U.S. P&C insurance industry saw its net income after taxes fall to just under $8 billion for January through September 2011—compared to net income of just over $27 billion for the same period in 2010, according to a report by ISO, the Property Casualty Insurers Association of America (PCI) and the Insurance Information Institute (I.I.I.).

“The [P&C] insurance industry turned in a relatively weak performance during the first nine months,” I.I.I. President Robert Hartwig said in a commentary on the results.

“Although profitability slumped amid high catastrophe losses, premium growth is accelerating, investment earnings were more robust than anticipated, and policyholders’ surplus declined only modestly from its all-time record high,” he added.

Net losses on underwriting for the time period were $34.9 billion, up from $6.3 billion for the first nine months of 2010. Losses in 2011 were driven by $33.2 billion in net losses and loss adjustment expenses (LLAE) from catastrophes. That figure was $10.8 billion for the first nine months of 2010.

The industry’s combined ratio climbed to 109.9 in the first nine months of 2011, compared to 101.2 in 2010.

Michael R. Murray, ISO’s assistant vice president for financial analysis, said in a statement that the combined ratio is “the worst nine-month underwriting result since the 114.4 combined ratio for nine-months 2001.”

He noted that the bad news in 2011 wasn’t due only to catastrophes: “Even after adjusting for catastrophe losses, the latest data indicates that insurers continued to face headwinds in their core business—underwriting. ISO estimates that insurers’ combined ratio would have risen 1.7 points to 102.9 percent in nine-months 2011 if net LLAE from catastrophes had remained the same as they were in nine-months 2010.”

Murray added, “The deterioration in adjusted underwriting results is cause for concern because today’s low interest rates severely limit insurers’ ability to generate incremental investment income.”

Insurers saw a 3.5 percent increase in investment income through the first nine months of 2011, bringing it up to $36.5 billion, but Robert Gordon, PCI senior vice president for policy development and research, said in a statement, “The growth in insurers’ investment income in nine-months 2011 resulted from a $2 billion increase in the dividends that one insurer received from a major non-insurance operation acquired in early 2010.”

Excluding that $2 billion, insurers’ net investment income declined by $0.8 billion, or 2.2 percent, to $34.5 billion in nine-months 2011 as a consequence of low interest rates and declines in investment-income yields, he added.

Policyholders’ surplus decreased to $538.6 billion for the first nine months, down from $559.2 billion at year-end 2010, but Hartwig pointed out that surplus still exceeds the pre-financial-crisis high of $521.8 billion set in 2007’s third quarter.

 “One outstanding question is whether the decline in surplus during the second and third quarters are a transient occurrence, caused chiefly by surging catastrophe losses, or whether it is the beginning of a sequence of declines whereby excess capital is expunged from [P&C] insurer balance sheets as core (non-cat) underwriting losses mount and the ability to release prior-year reserves into the earnings stream diminishes,” said Hartwig.

Putting the nine-month results into perspective, Gordon said, “Despite massive net losses on underwriting, insurers emerged from nine-months 2011 strong, well-capitalized and capable of paying future claims.”

“Fundamentally, the [P&C] insurance industry remains quite strong financially, with capital-adequacy ratios remaining high relative to long-term historical averages,” Hartwig added.


Resource Center

View All »

Complimentary Case Study: Helping achieve your financial goals By:...

Find out how a Special Investigation Union used TLOxp to save the company money and...

Do Your Clients Hold The Right CDL License?

Learn about the various classes of CDL Licenses and the industries that are impacted by...

Integrated Content & Communications: A Key Business Issue For Insurers

Insurers are renewing their focus on top line growth, and many are learning that growth...

High Risk Insurance Coverage in the E&S Market

Experts discuss market conditions, trends and projected growth in a rapidly changing niche.

Top E-Signature Security Requirements

This white paper covers the most important security features to look for when evaluating e-signatures...

EPLI Programs Crafted Just For Your Clients

Bring us your restaurant clients, associations and other groups and we’ll help you win more...

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

PropertyCasualty360 Daily eNews

Get P&C insurance news to stay ahead of the competition in one concise format - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.