A.M. Best: P/C Industry’s Earnings Down 87% in Q1

July 9, 2009

The U.S. property/casualty industry’s net income fell 87 percent to $1.2 billion in the first three months of 2009 according to A.M. Best.

“The year-over-year decline in earnings was due primarily to the severe and prolonged turmoil in the financial markets and the related impact on the industry’s net investment income and realized capital losses,” A.M. Best wrote in its special report titled, “U.S. P/C Industry – 3-Month Underwriting Trends (2008/2009).”

A.M. Best says that combined, the industry’s net investment income and realized capital losses fell $8.7 billion to $4.4 billion during the first quarter of 2009, down from $13.1 billion during the same period in 2008.

Report Highlights

  • For the first-quarter 2009, net premiums written (NPW) fell $4.2 billion, or 3.8%, to $107.6 billion from $111.8 billion.
  • The industry recorded an underwriting loss of $0.8 billion, driven by continued rate pressure, lower top line growth, weather-related losses and the impact of significant losses reported by mortgage and financial guaranty insurers.
  • The combined ratio rose to 100.5 from 99.8, which A.M. Best states is attributable to challenging market conditions, higher than-normal catastrophe-related losses and further underwriting losses in the mortgage and financial guaranty segments. The mortgage and financial guaranty segments reported an underwriting loss of $1.9 billion and posted a combined ratio of 220.8, adding approximately two percentage points to the industry’s combined ratio.
  • The personal lines segment’s underwriting results deteriorated, with a reported calendar-year combined ratio of 100.7, up from 98.4, which reflects a continued high trend in the frequency of homeowner catastrophe and attritional losses, A.M. Best noted. Net income in the personal lines segment also suffered through the first quarter of 2009 with a reported year-over-year decrease of 69.5 percent, compared to a year-over-year decrease of 38.5 percent through the first quarter of 2008, according to A.M. Best. The decline in net income was driven by significant realized capital losses, lower investment income and modest underwriting losses. In addition, the personal lines’ policyholder surplus declined through the first quarter of 2009 with a reported year-over-year decrease of 14.6 percent, compared to an increase of 4.8 percent through the first quarter of 2008.
  • The commercial lines segment’s combined ratio made slight improvements to 101.2, compared with 102.1, which was driven by improvements in the loss and loss-adjustment expense (LAE) and underwriting expense ratios. Underwriting results for the segment continued to reflect extensive losses in the mortgage and financial guaranty segment, which contributed about 4.4 points to commercial lines segment’s combined ratio for the first quarter of 2009, but just 2.7 percent of the commercial lines segment’s net premiums written, A.M. Best reported.
  • The report also noted that the U.S. reinsurance segment’s statutory net premiums written increased approximately 5.4 percent to $7.1 billion compared with $6.7 billion in the first quarter of 2008. Best notes that a key driver of this growth is a 19.3 percent increase of net premiums written by the largest reinsurer, National Indemnity Company, which writes approximately twice as much as its nearest competitor in the United States on a net premium basis. The report notes, “However, several carriers experienced a reduction of premium writings as market conditions – absent of peak-zone catastrophe risks – have not hardened to the degree that many had predicted at the beginning of the year.” Overall, the U.S reinsurance segment posted a combined ratio of 94.3, compared with 92.9.
  • Net investment gains fell $8.7 billion to $4.4 billion, down from $13.1 billion.

    Overall the P/C industry’s policyholder surplus declined $82.0 billion, or 15.5 percent, to $447.2 billion for the 12 months ended March 31, 2009.

“As expected, 2009 is shaping up to be another challenging year for the U.S. property/casualty industry, and the unfavorable economic, investment and underwriting environments are expected to continue straining underwriting and operating results through the remainder of the year,” A.M. Best concluded.

Source: A.M. Best

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