P&C Industry First-Half Net Drops More Than 50%

Property and casualty insurance industry first-half net income fell 59.3 percent, reflecting weakness in the economy and losses in investment income, according to an industry report released today.

The Jersey City, N.J.-based Insurance Services Office and the Property Casualty Insurers Association of America released the second-quarter report on industry results that says net income for the first six months of the year dropped from $14.1 billion in the first half of 2008 to $5.8 billion for the first six months of this year.

The main driver of these results was a more than 50 percent drop in insurers’ investment gains that fell to $12.4 billion this year from $24.9 billion for the same period last year.

Offsetting the deterioration in results was the improvement in net losses on underwriting that stood at $5.6 billion for the first six months of 2008 to $2.2 billion for the first half of 2009.

The numbers are consolidated estimates for all p&c insurers based on reports accounting for at least 96 percent of all business written by private U.S. p&c insurers, the report said.

Michael R. Murray, ISO’s assistant vice president for financial analysis, said in a statement that “2009 is the second-lowest first-half rate of return since the start of ISO’s quarterly data in 1986 and 7 percentage points less than the 9.5 percent average first-half rate of return for the past 24 years.

Mortgage and financial guaranty insurers faired particularly poorly with annualized rate of return falling to negative 77 percent from negative 67 percent last year.

Excluding these two segments, the insurance industry’s annualized rate of return declined to 5 percent for the first half of 2009 from 8 percent last year, he said.

Policyholder’s surplus (insurers’ net worth measured according to statutory accounting principles) rose 1.2 percent to $463 billion as of June 30, from $457.3 billion at year-end 2008.

David Sampson, PCI president and chief executive officer, said that despite the economy “the insurance industry remained profitable and policyholders surplus increased.”

“Property and casualty insurers continued to be healthy and competitive despite an extraordinarily difficult operating environment complicated by the worst recession in decades and the lingering effects of an unprecedented financial crisis that brought down many once iconic banks and Wall Street institutions,” he added.

The report noted that net written premiums dropped $9.4 billion, or 4 percent, to $213 billion for the first half of 2009. Net earned premiums declined $6 billion, or 3 percent, to $211 billion.

Insurance Information Institute President Robert P. Hartwig noted in a separate commentary, “The results provide the first evidence of a rebound in profitability for property and casualty insurers in the wake of the financial crisis that began in mid-2007.”

He noted that reduction in realized capital losses contributed greatly to pull results back into positive territory. Secondary factors included improved underwriting conditions, with the combined ratio for the second quarter falling to 99.5 from 100.9 in the first quarter of this year.

This compares with a 2008 second-quarter combined ratio of 104.1 and 102 for the first quarter of that same year, Mr. Hartwig noted.

He said the increase in policyholders surplus is also another sign of recovery, calling the reversal “notable and important.”

Mr. Hartwig went on to say that while U.S. Federal Reserve Chairman Ben Bernanke recently declared the recession technically over, it “does not portend a period of unbridled growth and prosperity.”

The wounds from this recession, he remarked, are deep and in some cases permanent, and new growth will come after “a slow and fitful recovery.” He said it will take two to three years to replace the exposure that was lost since the recession began in mid-2007.