P-C Industry 4th Quarter Loss In '08 Was $1.69 Billion

NU Online News Service, April 9, 2:22 p.m. EDT

U.S. property-casualty insurers in the 2008 fourth quarter chalked up a $1.69 billion loss compared with a $12.9 billion profit the year before, Insurance Services Office and the Property Casualty Insurers Association of America (PCI) reported.

The companies in their statement preferred to focus on full year results, which remained profitable a 96.2 percent drop in the industry's 2008 after tax net income, which fell to $2.4 billion.

Fourth quarter net earned premiums fell to $108 billion compared with $109 billion for the period in 2007. There was a quarterly net underwriting loss of $1.7 billion compared with a $949 gain the year before.

Net income, full year, was down by $60.1 billion from $62.5 billion in 2007, said Jersey City, N.J.-based ISO and Des Plaines, Ill. headquartered PCI. "Catastrophe losses, the recession, and the crisis in the financial system took a toll on underwriting and investment results," the report noted.

The firms reported that insurers had $455.6 billion in policyholders' surplus (or statutory net worth) at year-end 2008.

Their report said carriers had $555.6 billion in loss and loss adjustment expense reserves to cover the cost of settling claims that had already occurred and another $200.8 billion in unearned premium reserves for losses during the remaining term of policies in effect at year-end 2008.

Total funds available to cover losses and other contingencies were just over $1.2 trillion, said ISO and PCI.

The firms commented that key leverage ratios, such as the premiums-to-surplus ratio, show that the property-casualty insurance industry "remained well capitalized, though policyholders' surplus fell $62.3 billion, or 12 percent, from $517.9 billion at year-end 2007."

The companies found that with the decline in net income, the insurance industry's overall rate of return on average policyholders' surplus dropped to 0.5 percent in 2008 from 12.4 percent in 2007.

Contributing to the declines in insurers' net income and overall rate of return, insurers suffered $21.2 billion in net losses on underwriting in 2008 -- a $40.5 billion adverse swing from insurers' $19.3 billion in net gains in 2007.

The combined ratio -- a key measure of losses and other underwriting expenses per dollar of premium -- worsened to 105.1 last year from a profitable 95.5 in 2007, ISO and PCI said.

Insurers' net investment gains -- the sum of net investment income and realized capital gains (or losses) on investments -- fell 50.9 percent to $31.4 billion in 2008 from $64 billion in 2007.

Partially offsetting the deterioration in underwriting and investment results, said ISO and PCI, was insurers' miscellaneous other income, which rose $900 million to negative $100 million in 2008 from negative $1 billion the year before, and insurers' federal income taxes declined to $7.7 billion from $19.8 billion.

The firms said their figures are consolidated estimates for all private U.S. property/casualty insurers based on reports accounting for at least 96 percent of all business written by such insurers.

Michael R. Murray, ISO's assistant vice president for financial analysis said excluding the 2001 year of terrorist losses insurers' net income would have been the lowest in more than two decades,

David Sampson, PCI president and chief executive officer said insurers ability too remain profitable in 2008 and finish the year with more than a trillion dollars available to pay claims "is a remarkable testament to their risk management and conservative approach."

It was noted that mortgage and financial guaranty insurers took a hard hit with ISO estimating their annualized rate of return fell to negative 141.1 percent in 2008 from negative 13.4 percent in 2007. Excluding mortgage and financial guaranty insurers, the insurance industry's rate of return declined to 4.2 percent for 2008 from 13.2 percent for 2007, as the industry's net income fell 68.8 percent.

Full year net written premiums for the industry dropped $6 billion, or 1.4 percent, to $434.6 billion in 2008 from $440.6 billion in 2007. Net earned premiums declined $0.8 billion, or 0.2 percent, to $438.1 billion last year from $438.9 billion in 2007.