P/C Industry Suffered First-Ever Net Loss in 2001

April 19, 2002

The events of Sept. 11 and declines in interest rates and the stock market all contributed to make 2001 the worst year ever for the property/casualty industry, according to just released numbers from Insurance Services Office Inc. (ISO) and the National Association of Independent Insurers (NAII).

The industry was hit with a $7.9 billion net loss after taxes for the year, a dramatic change of events from the previous year, when it recorded $20.6 billion in net income. P/C’s statutory surplus, or net worth, dropped $27.7 billion, or 8.7 percent to $289.6 billion for the year-end 2001 from $317.4 billion at year-end 2000. The industry’s net loss on underwriting following policyholder dividends jumped dramatically to $53 billion last year, an increase of nearly 70 percent from $31.2 billion in 2000.

According to John Kollar, ISO vice president for consulting and research, the majority of experts predict losses, including workers’ compensation and liability lines, as a result of the Sept. 11 events, somewhere between $30 billion and $70 billion. Kollar points out that when subtracting losses covered by foreign insurers and reinsurers, U.S. insurers could in the end be looking at $25 billion in net underwriting losses from the terrorist attack. Kollar concludes that ISO’s study of insurer financial statements seems to indicate that U.S. companies included only around $10 billion of that amount for their reported results in 2001.

The combined ratio—measuring losses and underwriting expenses per dollar of premium—deteriorated to 116 percent in 2001, 5.9 percentage points worse than the industry’s 110.1 percent combined ratio for the previous year and 8.2 percentage points worse than the 107.8 percentage combined ratio for 1999. Except for 1985 (116.5 percent) and 1984 (118 percent), the industry’s 116 percent combined ratio for last year is the worst on record.

Net underwriting losses for 2001 amounted to 17 percent of the $312.4 billion in earned premiums during the year, a rise from 10.6 percent of the $294 billion in earned premiums for 2000.

ISO’s Property Claims Services ® (PCS) unit showed that catastrophe losses prior to reinsurance recoveries jumped to a record $24.1 billion (including $16.6 billion in property and business-interruption losses from the attack on Sept. 11) last year from $4.6 billion the previous year.

Not all the news was bad, as partially offsetting the adverse developments, was the fact that insurers earned $760 million in income from miscellaneous other operations in 2001, up from $373 million in 2000. Insurers also managed to recover $364 million in federal income taxes, following $5.5 billion in income taxes in 2000.

If there was a bright spot according to Kollar, it was that premium growth for 2001 was 8.1, more than double the 3.4 percent growth in the economy as measured by current dollar GDP.

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