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December 16, 2008 19:34:19
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Insurers Post Worst Underwriting Results Since 2001
By Andrew Frye
Dec. 16 (Bloomberg) -- U.S. property and casualty insurers posted their worst underwriting results since 2001 as hurricanes led to higher claims after companies cut prices to win business in a weakening economy.
Carriers had $19.9 billion in net losses from underwriting in the first nine months of the year, compared with $18.4 billion of gains in 2007, according to Insurance Services Office Inc., the Jersey City, New Jersey-based supplier of actuarial data.
Insurers were hurt by a record number of tornadoes in the second quarter and the costliest hurricane season since 2005 as Ike and Gustav slammed into the Gulf Coast in September. Industry executives said price competition intensified after American International Group Inc., the largest commercial insurer, was rescued by the government in September and took steps to retain customers.
Insurers’ results through the first nine months “fell victim to a perfect storm,” Michael Murray, assistant vice president at the ISO, said in the statement. “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.”
Travelers Cos., the second-biggest business carrier, lowered its full-year forecast in October after an 82 percent third- quarter profit drop. Chubb Corp., the insurer of commercial property and high-end homes, reported its worst quarter in three years.
Losses on investments, which aren’t counted in the underwriting number, nearly drove New York-based AIG to bankruptcy and contributed to stock declines at property insurers including Allstate Corp.
‘Party is Over’
Insurers spent $1.06 in claims and expenses for every dollar of premium revenue, the worst margin since 2001 when the Sept. 11 terrorist attacks contributed to costs of $1.14 in the nine-month period.
Billionaire investor Warren Buffett budgeted for leaner profits from insurance at his Berkshire Hathaway Inc. this year, scaling back sales as competition drove down prices. Rates had spiked following Hurricane Katrina in 2005, allowing Berkshire to increase premium revenue.
“That party is over,” Buffett wrote in his letter to shareholders that accompanied the firm’s 2007 results. The U.S. had lower-than-average storm losses in 2006 and 2007.
The seven-company Standard & Poor’s 500 Property & Casualty Insurance Index dropped about 35 percent this year. Travelers slipped 26 percent in New York Stock Exchange composite trading through yesterday. Chubb declined 9.5 percent and AIG plummeted 97 percent.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.
Last Updated: December 16, 2008 14:48 EST
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