Insurance Sales Fall Most in Half Century Amid Slump (Update3)

By Andrew Frye
Bloomberg News
April 9, 2009

April 9 (Bloomberg) -- U.S. property and casualty insurers posted the biggest sales decline in half a century last year as corporations and individuals scaled back purchases, an industry group said today.

Sales dropped 1.4 percent to $434.6 million in 2008, the Property Casualty Insurers Association of America said in an e- mailed statement.

The 2008 drop was the second straight after 47 years without a decline. Carriers are lowering prices to win new business as builders, manufacturers and banks cut jobs and reduce operations, limiting their need for coverage. Consumers, pinched by rising unemployment, are also reducing their auto insurance purchases.

"We had intensifying competition among insurers at a time when demand was abating," said Michael Murray, assistant vice president for financial analysis at Insurance Services Offices Inc., which collaborated on the study.

The sales slump pressured insurers including American International Group Inc. and Allstate Corp. as the worst financial crisis since the Great Depression lowered the value of stocks and bonds held to back policies. The Standard and Poor's Property & Casualty Insurance Index has declined by about 11 percent this year after falling 31 percent in 2008.

Investment Losses

Policyholder surplus -- a cushion against claims that's monitored by regulators and ratings firms -- slipped 12 percent to $455.6 billion as U.S. insurers accumulated $52.9 billion in unrealized investment losses. The unrealized declines, which aren't counted against net income, pushed total capital losses to $72.7 billion, compared with gains of $8.3 billion in 2007, according to the statement.

Insurers' net income dropped 96 percent to $2.4 billion for the year as hurricanes, tornadoes and price competition caused the industry to pay 105.1 cents in claims for every dollar in premium revenue, the study said.

The U.S. endured a record number of tornadoes in the second quarter followed by the costliest hurricane season since 2005 as six consecutive named storms, including Ike and Gustav, blew ashore. Commercial insurance rates fell 6.4 percent in the three months ended Dec. 31, and have dropped every quarter since 2004, according to the Washington-based Council of Insurance Agents and Brokers.

Investment losses and slim profits have prompted carriers around the world to demand higher rates on some lines of business coverage, Brian Duperreault, chief executive officer of Marsh & McLennan Cos., the second-biggest insurance broker, said in a February interview. Still, the recession is making it harder for companies to raise prices, Duperreault said.

Clients 'Suffering'

"We see our clients struggling and suffering" and trying to cut costs, Greg Case, CEO of Chicago-based Aon Corp., the world's largest broker, told investors on a Feb. 6 conference call.

Insurance buyers should prepare to confront rising premiums and tighter claims-paying policies as carriers seek to rebuild their finances, the American Association for Justice, a lawyers group, said today in a statement.

"The insurance industry is being put on notice," said Ray De Lorenzi, a spokesman for the AAJ. "Any attempt to use this economic crisis to unfairly raise premiums or systematically deny just claims will not go unnoticed."

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