P/C Industry Registers Nine-Month Net Loss in Wake of 9/11

January 1, 2002

The U.S. property/casualty industry registered a $3.1 billion net loss following taxes through nine-months 2001– its first-ever net loss following taxes through nine months. Reflecting the net loss and unrealized capital losses on investments, the industry’s surplus fell $35.5 billion, or 11.2 percent, to $281.0 billion at Sept. 20. From $317.4 billion at year-end 2000, according to Insurance Services Office Inc. (ISO) and the National Association of Independent Insurers (NAII).

The net loss following taxes through nine-months 2001 resulted mainly from drastically higher underwriting losses as claims from the Sept. 11 terrorist attack started to hit insurers’ bottom line. The industry’s net loss on underwriting went up nearly 80 percent to $37.5 billion through nine-months 2001 from $20.8 billion through nine-months 2000.

Other factors that contributed to the net loss include a 5.7 percent drop in net investment income to $27.5 billion through nine-months 2001 from $29.2 billion a year ago, along with a 45.7 percent drop in realized capital gains to $6.9 billion from $12.8 billion through nine-months 2001. The industry also suffered a $41 million loss on other miscellaneous operations through nine-months 2001, after earning $583 million on such operations through nine-months 2000.

The combined ratio — a key measure of losses and other underwriting expenses per dollar of premium — deteriorated to 114.5 percent for nine-months 2001, 6.2 percentage points worse than the 108.4 percent for nine-months 2000.

“Most experts estimate the ultimate cost of the attack on the World Trade Center and the Pentagon at between $30 billion and $70 billion. While some of the losses will be covered by foreign insurers, our analysts suggests that, as of September 30, U.S. insurers had only posted about $10 billion in net losses from the attack,” observed John J. Kollar, ISO’s vice president for consulting and research.

The industry’s consolidated surplus dropped $35.5 billion through nine-months 2001.

Factors which steered the decline in surplus included the $3.1 billion net loss after taxes, $33.8 billion in unrealized capital losses on investments, and $8.1 billion in dividends to shareholders.

According to Kollar, one of the only positives regarding results through nine-months 2001 was the increase in premium growth to 8.8 percent. Kollar added that with the nation’s gross domestic product up at 3.8 percent, premiums increased more than twice as fast as the economy.

Was this article valuable?

Here are more articles you may enjoy.