NU Online News Service, June 29, 1:03 p.m. EDT
The property and casualty industry posted a $1.3 billion first-quarter loss–the worst results it has recorded in more than 20 years, the Insurance Services Office said.
Jersey City, N.J.-based ISO said the p&c industry recorded net loss after taxes for the first three months of this year compared to net income of $8.5 billion for the same period last year.
The poor results were blamed on a combination of losses on underwriting and deterioration in investment results, ISO said, the primary revenue generators for insurers, with one segment of the industry (mortgage and other financial guaranty insurers) getting hit with a disproportionate toll on its results.
ISO said the industry saw a net loss after taxes on annualized overall rate of return on average policyholders surplus. The overall rate of return on surplus dropped to negative 1.2 percent for the first quarter of this year compared to a positive 6.6 percent for the same period last year.
There was also a worsening in the industry’s combined ratio, which rose over 100 in the first quarter from 99.9 to 102.2.
“Based on quarterly data extending back to 1986, insurers’ $1.3 billion net loss after taxes for the first three months of this year is the worst first-quarter result on record,” Michael R. Murray, ISO’s assistant vice president for financial analysis, said in a statement. “The perfect storm that beset the insurance industry in 2008 continued unabated in first-quarter 2009.”
ISO reported that net written premiums, on a comparative basis, dropped close to 4 percent, or $4 billion, to $106.4 billion. Net earned premiums declined 2 percent, or $2.3 billion, to $1.5.6 billion.
Mr. Murray called these results “the weakest for any first quarter since the start of ISO’s quarterly data” collection that goes back more than 20 years.
Investment results fell $1.1 billion, or 8.7 percent, to $11.7 billion through the three months.
In terms of annualized rate of return for mortgage and financial guaranty insurers, ISO estimates their number fell to negative 149.3 percent from a negative 89 percent for the same period last year. Excluding these insurers, the insurance industry’s rate of return declined to 2.2 percent from 9.5 for the comparative period last year.
Robert P. Hartwig, president of the Insurance Information Institute, noted in his commentary on the report that there were some bright spots in the gloomy numbers.
“There are several reasons to believe that the worst might be behind the industry in terms of realized investment losses,” he said.
Mr. Hartwig mentioned that insurers have shifted assets into more conservative investments and barring “another catastrophic deterioration in the financial markets, the magnitude of write-downs on credit instruments should begin to diminish.” Indeed, in some cases insurers may be able to record increases in value going forward.
He noted lower catastrophe losses were one of the few bright spots in the report, coming in at $2.9 billion for the quarter, down $600 million, or 17 percent, from the same period a year ago. Mr. Hartwig added that catastrophe losses have remained tame during the second quarter of 2009.
However, David Sampson, president and chief executive officer of Property Casualty Insurers Association of America, warned of a “genuine risk of complacency that could have disastrous consequences,” urging everyone to be prepared should a mega-catastrophe strike.
While net written premium growth remained negative in the first quarter of 2009, it is not as bad as the Great Depression, noted Mr. Hartwig.
While the industry has seen two straight years of negative written premium growth, followed by this year’s first quarter, the first consecutive three-year period of decline since 1930 to 1933, the numbers are not as bad as then.
Based on I.I.I.’s own estimates, Mr. Hartwig noted that from 1929 to 1933, premiums written fell by “a staggering 35 percent.”
Policyholder surplus, a measure of capacity, decreased by 12 percent in 2008 (the first decline since 2002) and another 4.2 percent for the first quarter of 2009. However, during the Great Depression policyholder surplus fell 28 percent.
“The bottom line is that the impact of the current financial crisis on p&c insurance, as bad as it is, in not even remotely close to impacts experienced during the Great Depression,” said Mr. Hartwig.
“While insurers remain cautious about the economy and financial market conditions, there is guarded optimism that both will continue to improve as we move into the second half of 2009,” Mr. Hartwig observed. “Fundamentally, the property and casualty insurance industry remains quite strong financially, with capital adequacy ratios remaining high relative to long-term historical averages.”