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P/C Profits Tumble in First Half of 2011 Due to Spike in Disasters

Private U.S. property/casualty insurers' net income after taxes fell to $4.8 billion in first-half 2011 from $16.8 billion in first-half 2010, with insurers' overall profitability...
October 12, 2011

Private U.S. property/casualty insurers' net income after taxes fell to $4.8 billion in first-half 2011 from $16.8 billion in first-half 2010, with insurers' overall profitability as measured by their annualized rate of return on average policyholders' surplus decreasing to 1.7 percent from 6.4 percent. Driving the declines in insurers' net income and overall rate of return, net losses on underwriting grew to $24.1 billion in first-half 2011 from $5.1 billion in first-half 2010. The combined ratio - a key measure of losses and other underwriting expenses per dollar of premium - deteriorated to 110.5 percent for first-half 2011 from 101.7 percent for first-half 2010.

The deterioration in underwriting results is largely attributable to a spike in net losses and loss adjustment expenses (LLAE) from catastrophes. ISO estimates that insurers' net LLAE from catastrophes in first-half 2011 totaled $23.9 billion, up from $8 billion in first-half 2010. These amounts exclude LLAE that emerged after insurers closed their books for each period but do include late emerging LLAE from events in prior periods. Partially offsetting the deterioration in underwriting results, net investment gains - the sum of net investment income and net realized capital gains (or losses) on investments - grew $2.4 billion to $28.4 billion in first-half 2011 from $26 billion in first-half 2010. Insurers' miscellaneous other income fell $0.1 billion to $0.6 billion in first-half 2011 from $0.7 billion in first-half 2010, and their federal and foreign income taxes dropped $4.7 billion to $0.1 billion from $4.8 billion. Policyholders' surplus - insurers' net worth measured according to Statutory Accounting Principles - fell $0.2 billion to $559.1 billion at June 30, 2011, from $559.2 billion at year-end 2010.

What It Means to Agents: The property/casualty insurance industry turned in a weak performance during the first half of 2011. Although profitability slumped amid high catastrophe losses, premium growth remained positive, investment earnings were more robust than anticipated and policyholders' surplus remained near its all-time record high.