Property/Casualty Insurers Badly Burned

The nation's property and casualty insurers suffered a combined 45% decline in first-quarter 2008 profits compared to the same period last year. Through the first three months of the year, the industry earned $9.4 billion, compared to $17 billion in the same period last year. That's down from record first-quarter profits of $17.8 billion in 2005.

In the midst of a soft market that's not expected to end any time soon, the industry's underwriting gains were virtually wiped out, falling to a mere $65 million in the first quarter, compared with $9 billion the prior year. This is on the heels of a sharp decline in 2007.

Net earned premium was essentially flat, down a slight 0.4%, while net losses (after reinsurance) were up $7.9 billion, or 11%, to $79.4 billion. Compounding the soft-market effects is the subprime mortgage crisis, which has lead to massive claims losses for mortgage and financial guaranty insurers.

Up until 2005 standard practice for the industry was to underwrite at a loss in the name of competitive pricing. Investment income would make up the difference plus more. That had changed in recent years when insurers were more committed to writing new business at a profit. The three years of underwriting profits helped to dramatically shore up capital and surplus.

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Based on catastrophes during the first half of the year, second-quarter underwriting results could very likely be even worse than first quarter. As reported by The Wall Street Journal yesterday, the Property Claims Services Unit of the Insurance Services Office (ISO) identified 24 catastrophes so far this year totaling claims of $8.9 billion. This is more than claims for all of 2007.

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