Poor investment results, soft pricing, a weak dollar and a near record year for catastrophes sent insurance stock indexes tumbling last year at a greater rate than the Dow Jones Industrial Average, a rarity according to a new A.M. Best report.
Traditionally, property-casualty and life and health insurance stocks outperform the DJIA, A.M. Best said in its special report, "Insurance Stock Indexes 2008 Market Review." But global insurance stocks measured by A.M. Best's Global Insurance Composite Stock Index (AMBG) dropped 47.2 percent, outpacing the DJIA's 33.8 percent fall, A.M. Best said.
Globally, A.M. Best's brokers index fared the best for insurance, down 10 percent. Non-life followed at 25.2 percent, then reinsurance at 38.7 percent, multiline at 56.7 percent, and life at 58.3 percent.
A.M. Best said, "Much of the brokers' success in this challenging environment is attributed to their relatively low-leverage and high-cash-flow business models, which fueled a flurry of mergers and acquisitions in the past year."
For the U.S. p-c and life and health indexes, A.M. Best noted that while they both finished 2007 at historical highs, 2008 saw the greatest ever decline for the U.S. life and health index (AMBULH) since results were calculated in 1941, at 54.7 percent, and the greatest decline since 1974 for the U.S. p-c index (AMBUPC), 24.2 percent.
The A.M. Best report said, with respect to the U.S. p-c index, "Since 1933, only twice has the AMBUPC fallen by more than its 24.2 percent drop in 2008. The first time was during the Great Depression in 1937, and the second in the stock market crash of 1974."
Contributing to the poor p-c, reinsurance and multiline results for the year, A.M. Best noted that 2008 saw high catastrophe losses, with ISO estimating that U.S. p-c insurers will pay $25.8 billion from 37 catastrophes for the year. "This number is roughly equivalent to the total global insured losses from the year before," A.M. Best said.
Globally, A.M. Best said Munich Re is estimating that catastrophes caused $200 billion in losses, $45 billion of which are insured. "Adjusted for inflation, those figures would make [2008] the third costliest year on record," A.M. Best said.
Of insurance companies tracked by A.M. Best's indexes, 14.7 percent finished with gains, the report states. Odyssey Re led the way with a 41.1 percent appreciation. A.M. Best said "the core of the gainers was concentrated in the Global Non-Life (AMBGNL) and Global Insurance Brokers (AMBGB) Indexes.
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