P/C Insurers' Net Slumped 96% In '08; Remain Well-Capitalized

By Kathy Shwiff
Dow Jones Newswire News
April 9, 2009

Net income of U.S. property-and-casualty insurers tumbled 96% last year amid surging investment losses, but the industry remains well-capitalized despite the earnings hit and the effects of catastrophes and the recession, according to research firm ISO and the Property Casualty Insurers Association of America.

The profit for the companies, which include publicly held and mutual companies but exclude entities such as state funds like Florida's Citizens Property Insurance Corp., would have been the lowest in more than two decades if not for the 2001 loss resulting from Sept. 11 terrorist attacks on the World Trade Center.

On Thursday, property-and-casualty insurers were making the case to Congress that they don't pose a risk to the financial system, drawing a sharp contrast with other insurers that have argued their collapse could drag down other companies or markets. The industry is worried it will be lumped with other insurers as lawmakers seek to overhaul financial regulation with an eye toward increasing scrutiny of nonbank financial businesses whose operations have ripple effects throughout the economy.

With property/casualty insurers remaining profitable last year and finishing the year with more than $1 trillion available to pay claims, PCI Chief Executive David Sampson called that "a remarkable testament to their risk management and conservative approach."

Insurers posted $21.2 billion in net losses on underwriting in 2008, compared with $19.3 billion in net gains in 2007. The combined ratio - a key measure of losses and other underwriting expenses per dollar of premium - jumped to 105.1% last year from 95.5%.

According to ISO and the trade group, the property-and-casualty industry's overall rate of return on average policyholders' surplus dropped to 0.5% in 2008 from 12.4% in 2007. That was the second-lowest full-year rate of return since ISO started collecting annual data in 1959. The rate has averaged 9.2% the past 50 years.

The industry's figures include the hard-hit mortgage and other financial-guaranty insurers, which have suffered most from the recession and financial crisis. Their annualized rate of return tumbled further into negative territory. Excluding mortgage and financial-guaranty insurers, property and casualty's rate of return fell to 4.2% for 2008 from 13.2% as net income slumped 69%.

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