Due in part to rising loss adjustment expenses and underwriting and investment losses, the P/C industry's net income fell by more than 57 percent for the first half of 2008.

That figure was announced via joint release from ISO, the Insurance Information Institute (I.I.I.), and the Property/Casualty Insurers Association of America (PCI) earlier this week. According to the statement, the P/C industry's net income after taxes topped out at $14 billion, a decrease of more than $32.7 billion from the same January-June period in 2007.

Insurers suffered $5.6 billion in net losses on underwriting in first-half 2008, which was a $20.2 billion adverse swing from insurers' $14.5 billion in net gains on underwriting in first-half 2007. The combined ratio -- a key measure of losses and other underwriting expenses per dollar of premium -- worsened to 102.1 percent in the first half of this year from 92.7 percent in the first half of 2007, according to ISO and PCI.

Unsurprisingly, insurers' net investment gains -- the sum of net investment income and realized capital gains (or losses) on investments -- fell 18.4 percent to $24.8 billion in first-half 2008, down from $30.3 billion in first-half 2007.

But investment losses were not the only cause for worry. According to ISO's Property Claim Services (PCS) unit, catastrophes occurring in first-half 2008 caused $10.3 billion in direct insured losses to property (before reinsurance recoveries) -- almost three times the $3.6 billion in direct insured losses to property due to the catastrophes occurring in first-half 2007 and nearly twice the $5.2 billion average for first-half catastrophe losses during the past 10 years.

"Insurers' 5.4 percent annualized rate of return for first-half 2008 was the fourth-lowest first-half annualized rate of return in the past 23 years," said Michael R. Murray, ISO's assistant vice president for financial analysis. "But results for the insurance industry overall were affected by 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 77.2 percent in first-half 2008 from 21.6 percent in first-half 2007. Excluding mortgage and financial guaranty insurers, the insurance industry's annualized rate of return declined to 7.6 percent in first-half 2008 from 12.8 percent in first-half 2007, as the industry's net income fell 38.8 percent."

Despite the bad news, industry representatives were quick to point out that the gloomy earnings report was not cause for panic.

"The insurance industry remains sound and well able to fulfill its obligations to policyholders," said David Sampson, PCI president and chief executive officer. "The current turmoil in the financial market that undermined some of the nation's leading financial institutions had relatively little effect on P/C insurers, largely because of insurers' conservative investment practices. Even with a deterioration in P/C insurers' financial results in the first half of the year, consumers can be confident that insurance remains a strong and stable cornerstone of the economy."

Given the day-to-day uncertainty in the financial markets, one hopes Sampson is right.

Special Reports /

Soft Market, Catastrophes Deflate Industry Earnings

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