The U.S. property/casualty industry’s net income after taxes fell more than 50 percent to $15.9 billion in the first half of 2008 on a combination of deteriorating underwriting results and declining investment returns. As a result, the U.S. property/casualty industry’s annualized after-tax return on equity (return on surplus) — which measures overall after-tax profitability from underwriting and investment activity — fell to 9.5 percent for the 12 months ended June 30, 2008, from 14.2 percent for the 12 months ended June 30, 2007.
Net premiums written declined approximately $1.6 billion, or 0.7 percent, to $224.3 billion through the first half of 2008 from $225.9 billion during the same period of 2007.
The industry’s overall combined ratio deteriorated to 102.1 in the first half of 2008 as a result of continued price softening, challenging market conditions, unusually high catastrophe losses and significant underwriting losses reported by mortgage and financial guaranty insurers.
Excluding the impact of groups within the A.M. Best Co. mortgage and financial guaranty composites, the U.S. property/casualty industry posted a more modest underwriting loss of $1.2 billion and a combined ratio of 99.9.
Policyholder surplus (PHS) declined 4.5 percent to $512.9 billion through the first half of 2008 from $537.2 billion at year-end 2007.
The industry’s investment results continued to be pressured through the first six months by the low interest rate environment, ongoing turmoil in the credit markets and extreme volatility in the equity markets.
The personal lines segment’s underwriting results deteriorated through the first half of 2008 with a reported combined ratio of 102.5.
The commercial lines segment’s combined ratio deteriorated to 102.2 in the first half, as loss experience in the first six months reflected significant losses from mortgage guaranty and financial guaranty insurers.
The U.S. reinsurance segment’s combined ratio increased to 97.0 in the first half, up from 90.3 during the same period of 2007.
A.M. Best expects the industry’s performance measures to be pressured through the second half of 2008, given the sustained competitive pressures in practically all lines of business and geographic areas; continued volatility in the financial markets; and the expectation of further hurricane activity in the Atlantic basin.
Source: A.M. Best, www.ambest.com