A.M. Best reported dismal news for the nation's P&C industry's first-quarter results. The rating organization's recent study showed that net profit nose-dived a stunning 45 percent, to $9.3 billion, in the first quarter of 2008. Best attributed the results primarily to premium erosion, deteriorating underwriting results, higher catastrophe-related losses, and weaker investment returns. Also noted were significant underwriting losses in the mortgage and financial guaranty segments. Although the industry did report some gains in significant areas, overall the news was not good. Key findings and commentary from the report, available at www.bestweek.com, include:
-First-quarter 2008 catastrophe losses in the United States were the largest for similar timeframes over the past decade: an estimated $3.35 billion, up from $1.26 billion during the same period of 2007.
-Annualized after-tax return on equity, which measures overall after-tax profitability from underwriting and investments, fell to 11.4 percent for the 12 months ended March 31, from 14.7 percent for the 12 previous months.
-Net premiums earned decreased $1.6 billion, or 1.4 percent, to $109.8 billion from $111.4 billion during the same period a year ago.
-Downward pricing pressure is expected to carry on through the remainder of 2008, with rates deteriorating and broader terms and conditions expected for the industry as a whole.
-While the industry's net investment income — primarily dividends from stocks and interest on bonds — decreased only slightly during the first quarter of 2008, the industry had realized and unrealized capital losses of $0.4 billion and $9.6 billion, respectively, for a total of $10.0 billion in overall capital losses, down considerably from $1.9 billion in overall capital gains recorded during the same period of 2007.
-The industry faces a significantly more challenging environment for the remainder of 2008 due to a combination of deteriorating rate adequacy, loosening terms and conditions, a more challenging investment climate, and looming hurricane-related losses.
-Should the industry suffer major hurricane-related losses along with expected weaker investment returns, operating results could continue to deteriorate sharply, leading to downward ratings pressure for a number of insurers in this highly cyclical market.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.