Shops could experience an even tighter squeeze from insurance companies looking to pinch every precious penny possible in the coming year thanks to a huge drop in income. The U.S. property-casualty insurance industry’s net income after taxes through the first nine months of 2008 amounted to $4.1 billion, a 91.8 percent drop from the $50 billion net income reported during the same period in 2007.
Insurers suffered $19.9 billion in net losses on underwriting through nine-months 2008 – a huge difference from the same period last year in which insurers had $18.4 billion in net gains on underwriting, according to the Property Casualty Insurers Association of America (PCI) and the Insurance Services Office (ISO).
In another financial blow, insurers’ net investment gains fell 40.7 percent for the first nine months of 2008, and the industry’s overall profitability as measured by its annualized rate of return on average policyholders’ surplus (or statutory net worth) dropped to 1.1 percent for nine-months 2008, from 13.1 percent for nine-months 2007.
“Insurers’ results through nine-months 2008 fell victim to a ‘perfect storm,’ as the downturn in the economy, the crisis roiling the financial system, softening in insurance markets and weather-related catastrophe losses combined to take a toll on underwriting and investment results,” said Michael R. Murray, ISO’s assistant vice president for financial analysis.
Net written premiums dropped by $1.4 billion, or 0.4 percent, to $336 billion through nine-months 2008, compared to $337.4 billion through nine-months 2007. Murray said this was the weakest growth period ever recorded by the ISO.
Natural disasters were to blame for some of this year’s losses. According to ISO’s Property Claim Services (PCS) unit, catastrophes occurring in the first nine months of 2008 caused $24.9 billion in direct-insured losses to property, more than five times the $4.8 billion in direct-insured losses to property due during the same period last year.
The 105.6 percent combined ratio for the first nine months of 2008 is the worst nine-month underwriting result since the 114.4 percent combined ratio for the first nine months of 2001, when the Sept. 11 terrorist attacks led to a spike in catastrophe losses. And the combined ratio for nine-months 2008 is 0.6 percentage points worse than the 105 percent average nine-month combined ratio since the start of ISO quarterly data in 1986.
