U.S. P-C Net Income Declines 49 Percent in First-Quarter 2008

On the investment side, David Sampson, PCI president and chief executive officer, said that an increase in insurers' holdings was more than offset by a decline in the annualized yield on their portfolios.

He said, "We may see further declines in investment income if softening prices in insurance markets cut into premiums and the new cash available to fund growth in investment portfolios."

Mr. Sampson added that weakness in the economy and problems in the credit markets may lead to the Federal Reserve Board cutting interest rates further.

The industry's combined ratio deteriorated to 99.9 from 91.7 in the first quarter of 2007. ISO and PCI said the first-quarter 2008 combined ratio is the highest for any first quarter since 2002, and reflects "imbalances between the declines in premiums and the increases in the costs of providing insurance."

Net written premiums fell $800 million to $110.5 billion in the quarter. Mr. Murray said, "Written premiums have now declined versus year-ago levels for four successive quarters. This is absolutely unprecedented based on ISO's quarterly data extending back to 1986."

In a statement, Robert Hartwig, president of the Insurance Information Institute (I.I.I.), said implications from the housing collapse and credit crunch on the mortgage and guaranty segments of the p-c industry have driven the negative results for the quarter. "Excluding this segment reveals a much more modest decline in profitability more in keeping with the pace normally associated with cyclical downturns," he said.

He added, "One continued cause for concern in 2008 is that premium growth remains in negative territory and is, in fact, severely negative on an inflation-adjusted basis.

"Fundamentally, however, the p-c insurance industry remains quite strong financially, with policyholders' surplus close to all-time record highs."

John L. Del Santo, managing director of Accenture's Insurance practice for North America, said the U.S. p-c sector's performance for the quarter is not surprising, and is in line with the results of a recent survey of equity analysts conducted by Accenture.

"It's time for many of the insurers in the U.S. to get serious about their operating models," Mr. Del Santo said, noting that modern technology and flexibility problems built into the way most insurance companies operate are hurting the industry.

He said the negative first-quarter results may be somewhat of a wakeup call for insurers with respect to the soft market pricing, and he added that there are some signs that private passenger auto rates are already starting to bottom out.

Donald Light, senior analyst with Celent, said in a statement, "There is no question the industry is in tougher times. The real question is whether most insurers have gotten smart enough about pricing risks and adjusting claims to keep their heads above water for this swing of the cycle."

Explaining the results, Mr. Light said, "The icy hand of the credit crisis was felt as mortgage insurers and financial guaranty insurers contributed a substantial amount to the underwriting decline."