NEW YORK, Jan 15 (Reuters) - Property-casualty insurers are expected to report lower investment income in the fourth quarter and will be hurt by additional catastrophe losses from worse-than-expected hurricane activity earlier in 2008, Wachovia said on Thursday.
Total insured catastrophe losses in 2008 rose to about $45 billion, about double 2007 levels and the third costliest year on record, according to estimate from Munich Re on Thursday.
Insurers are expected to absorb about one-fifth of global losses from the financial crisis, said Robert Hartwig, an economist with the Insurance Information Institute, citing figures from the International Monetary Fund, which includes life insurers.
While neither investment losses or claims have jeopardized insurers' solvency, profits declined in 2008, Hartwig told reporters."
Insurers have met the challenge and continue to pay claims in what is likely to become the longest recession since the Great Depression," said Hartwig, adding that the worst may yet come.
Catastrophe losses in the fourth quarter are expected to be minimal, said Hartwig.
Insurers with large investment portfolios could be among the worst hit in the quarter, Wachovia said in a note to clients, referring to companies that have invested in hedge funds and private equity firms. XL Capital Ltd (XL.N) and Max Capital Group Ltd (MXGL.O) are among those insurers.
Insurers are set to begin reporting quarterly results by month's end, with Travelers Cos Inc (TRV.N), Allstate Corp (ALL.N) and Chubb Corp (CB.N) among those expected first.
Wachovia cut its fourth-quarter earnings outlook for 12 insurers, including Allstate and Everest Re Group Ltd (RE.N). However, the brokerage expects policy rates to start going up as the year progresses, creating underwriting opportunities."
Private reinsurers should have an opportunity to write more business in Florida at the June/July renewals," Wachovia said, adding that the tough credit environment made it difficult for the Florida Hurricane Catastrophe Fund to raise enough capital to fully back its expected 2009 capacity.
Wachovia named Ace Ltd (ACE.N), EverestRe and PartnerRe Ltd (PRE.N) as its top picks, and said Ace is attracting business from insurance buyers seeking stable carriers, citing the financial woes of American International Group Inc (AIG.N), XL Capital and Hartford Financial Services Group Inc (HIG.N).
AIG, once the world's largest insurer by market value, has been badly hurt by massive mortgage losses in a financial products unit not tied to any insurance operations. The company was saved from bankruptcy by a U.S. government rescue that has risen to about $150 billion.
EverestRe and PartnerRe should see a rise in demand from insurers looking to expand the number of reinsurers they buy coverage from, according to Wachovia.