Property/Casualty Insurance Cos. See 70 Percent Decline in Profits

Corporate buildingsCatastrophes in the first six months of 2011 caused profits to plummet for private U.S. property/casualty insurers, with net income after taxes falling to $4.8 billion from nearly four times that amount during the first half of 2010, according to insurance industry experts.

Overall profitability for providers of home, auto and business insurance dropped from 6.4 percent to 1.7 percent, as measured by the annualized rate of return on average policyholders’ surplus, according to information released this week by ISO and the Property Casualty Insurers Association of America (PCI).

That was the lowest for the first half of any year since ISO began quarterly records in 1986 and 7.7 points below the 9.4 average first-half rate of return for the quarter-century ending last year.

Net losses on underwriting ballooned to $24.1 billion from January through June, up from $5.1 billion for the same period last year, according to a release.

ISO reported that domestic catastrophes—including tornadoes, windstorms and other natural disasters—caused $23 billion in direct insured losses for all property/casualty insurers, up $14.1 billion from last year and about three times the average for first-half losses over the past decade.

The data from ISO and PCI provides the latest glimpse at the extent of the damage done by severe weather events this year. The Insurance Information Institute (III) reported last month that insurers paid out nearly $25 billion in catastrophe claims through the first nine months of 2011.

Catastrophes in just the first half of the year—before Tropical Storm Irene and other disasters—caused an estimated $27 billion in damages nationwide, according to III.

The insurance industry typically defines a catastrophe as an event that causes $25 million or more in insured property losses and affects a significant number of policyholders and coverage providers, according to III.

The National Oceanic and Atmospheric Administration (NOAA) announced in September that weather-related catastrophes nationwide in the first half of 2011 brought more than $35 billion in economic costs, even before other disasters including Irene, which III has predicted could tally as much as $5 billion in damages.

According to ISO and PCI, overall losses occurred despite some gains. Net written premiums climbed 2.6 percent to nearly $219 billion and payouts—including claims settled for North Carolina auto insurance policyholders and other customers in storm-ravaged states added up to $800 million from January through June, more or less the same as last year.

Officials said underwriting losses can be blamed largely on an increase in net losses and loss adjustment expenses (LLAE) as a result of catastrophic events. ISO estimated net LLAE from catastrophes that happened in the first six months of the year at about $24 million, or four times the amount for the first part of 2010.

David Sampson, president and chief executive officer of PCI, said insurers have weathered the storms of early 2011. Insurers emerged “financially sound and well able to continue providing essential financial protection to consumers and businesses alike,” he said in a statement.

About Gregor McGavin
Gregor McGavin is an award-winning journalist who has reported across the country for such publications as The Associated Press, the Arizona Republic, the Pittsburgh Tribune-Review and the Press-Enterprise.

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