P&C Insurers Recovering From Economic Crisis, ISO Reports

NU Online News Service, April 15, 11:33 a.m. EDT

The U.S. property and casualty industry showed signs of economic recovery in 2009, but profitability remained substantially off from what it experienced just prior to the economic meltdown, a report said.

Jersey City, N.J.-based Insurance Services Office released figures today showing industry net income for 2009 rose 831 percent for the year closing at $28.3 billion compared to net income of slightly more than $3 billion in 2008.

However, the industry remained a long way from the success of 2007 when it posted net income for the year of $62.5 billion prior to the economic crisis, ISO said.

The industry's overall rate of return on average policyholders' surplus was found to have increased to 5.8 percent last year compared to 0.6 percent in 2008. ISO pointed out that the results were less than half of the 12.4 percent rate of return for 2007.

"Though insurers' 5.8 percent rate of return for 2009 was nearly ten times their 0.6 percent rate of return for 2008, insurers' overall rate of return remained below its long-term average," said Michael R. Murray, ISO's assistant vice president for financial analysis in a statement.

"During the 51 years from the start of ISO's annual data for the insurance industry to 2009, insurers' rate of return averaged 9.1 percent. The industry's subpar performance last year reflects a combination of negative rates of return for mortgage and financial guaranty insurers and modest single-digit rates of return for other insurers," Mr. Murray added.

ISO's report, released in partnership with the Property Casualty Insurers Association of America and the Insurance Information Institute, contains consolidated estimates for all p&c insurers based on reports accounting for at least 96 percent of all business written by private U.S. p&c insurers, ISO said.

"The increases in property-casualty insurers' income, rate of return, and policyholders' surplus leave them well positioned to fulfill their obligations to policyholders and provide the insurance coverage necessary to fuel the economic recovery," said David Sampson, PCI president and chief executive officer.

Mr. Sampson noted that, "While attention has been focused on consumers' ability to obtain mortgages and on businesses' access to credit, people would not be able to buy homes or autos, and businesses would not be able to operate, without the property casualty industry."

Driving the performance in 2009 was an $18.1 billion drop in net losses on underwriting to $3.1 billion. This drove the combined ratio to improve to 101 in 2009 compared to 105 in 2008.

Also fueling the performance were gains in investments that grew 23 percent, or $7.3 billion, to $39 billion in 2009.

In his commentary on the results, Insurance Information Institute President Robert P. Hartwig said, "The results provide solid evidence of a substantial and sustained rebound in profitability for p&c insurers in the wake of the financial crisis that began in mid-2007."

He called the magnitude and speed of the turnaround "truly remarkable given the length and depth of the crisis. As recently as the first quarter of 2009 the industry recorded a negative rate of return."

For the fourth quarter of 2009, the industry recorded net income of more than $12 billion, compared to a loss of more than $1.3 billion in 2008.

The report noted that net written premium growth has been negative for three consecutive years, falling to a record new low in 2009 of $419 billion, a drop of 4 percent or close to $16 billion compared to 2008.

The drop reflected the "lingering aftereffects of the recession and crisis in the financial system," said Mr. Murray.

Mr. Hartwig commented that, "the most extraordinary sign of recovery" for the industry was its claims paying capacity as measured by policyholders' surplus.

The surplus increased 12 percent in the fourth quarter, or $54.2 billion, to $511.5 billion compared to 2008.

Mr. Hartwig said this was important because by the second quarter of 2007 the surplus had peaked to $522 billion before plunging to $437 billion at the trough of the economic crisis.

"The bottom line is that p&c insurance industry capacity came within 2 percent of its all time record high just nine months after reaching its crisis low," he noted. "Given continued favorable market conditions in the first quarter of 2010, it is quite likely that industry capacity reached a new record high, despite lingering difficulties in the overall economy," said Mr. Hartwig.

And he declared that "one commonly used measure of capital adequacy--the ratio of net premiums written to surplus--is at its strongest level in modern history."