$7.9 Billion 2001 P-C Industry Loss

$7.9 Billion 2001 P-C Industry Loss

By Susanne Sclafane

NU Online News Service, Apr. 15, 3:08 p.m. EST?The property-casualty insurance industry suffered its first ever full-year net loss last year--$7.9 billion after taxes.

The figure compared to $20.6 billion of net income in 2000, according to figures released today by the Insurance Services Office in Jersey City, N.J., and the Des Plaines, Ill.-based National Association of Independent Insurers.

The industry's net worth?statutory surplus?also fell 8.7 percent to $289.6 billion at year-end 2001 from $317.4 billion at year-end 2000.

The drop put the industry surplus figure below $300 billion for the first time since 1996, according to historical reports previously released by ISO.

The ISO/NAII figures show that both severe underwriting losses and lower investment gains contributed to the negative earnings picture for p-c insurers.

With $16.5 billion in net catastrophe losses recognized for 9/11 and other catastrophic events in 2001, underwriting losses "ballooned" to $53 billion in 2001, up nearly 70 percent from $31.2 billion in 2000, the organizations said.

John Kollar, ISO vice president-consulting and research, noted that while experts believe U.S. insurer net losses from the terrorist attacks will ultimately reach $25 billion, the year-end figures reveal that only about $10 billion of those losses were recorded in U.S. insurer financial results for 2001.

The combined ratio for 2001 was 116, or 5.9 points worse than the 110.1 level recorded in 2000.

According to ISO and NAII, the industry reported worse combined ratios in only two other years?1985, when the figure was 116.5, and 1984, when the combined ratio came in at 118.

The big contributor to poor insurer underwriting results was a 15.6 percent jump in loss and loss adjustment expenses, today's report said. In addition to the four-fold increase in catastrophe losses?rising to $16.5 billion (including 9/11) from $4.6 in 2000-?non-catastrophe losses jumped nearly 11 percent to $259.7 billion.

On the investment side, realized gains fell 57.5 percent to $6.9 billion. In addition, investment income, interest on bonds and dividends on stocks, fell 8.9 percent to $37.1 billion.

Operating income, excluding realized gains, fell $25 billion to negative $15.2 billion, the report said. In 2000, operating income was positive $9.9 billion.

Unrealized capital losses of $17.7 billion contributed to the surplus decline.

The only bright spot in the full-year earnings picture was premium growth. Net premiums grew 8.1 percent in 2001 to $324 billion. Previous growth figures were 5.3 percent in 2000, 1.9 percent in 1999, and a record-low of 1.8 percent in 1998.

Tracking quarterly results, ISO and NAII reported that the fourth quarter came in better than the third quarter, with the industry reporting a $4.8 billion net loss in the later quarter. The third-quarter figure was a $5.6 billion net loss.