Insurance Center

From the high of $16.4 billion in pretax operating income for the fourth quarter of 2007, the property and casualty industry’s fourth quarter’s pretax operating income for 2008 is down $5.4 billion, or 32.7 percent to $11 billion. This drop in fourth-quarter 2008 pretax operating income is a reflection of the net investment income excess of $13.1 billion over $1.3 billion in net losses and on underwriting and the negative $0.8 billion in miscellaneous other income.

The fourth-quarter net losses on underwriting in 2008 of $1.3 billion represents a $2.3 billion negative shift from the $0.9 billion in net gains reported for underwriting in the fourth quarter of 2007. In addition to what can only be seen as a clear deterioration in underwriting results, in the fourth quarter of 2008 expenses for overall loss and loss adjustment rose by 3.2 percent, or $2.5 billion, from $77.9 billion in fourth-quarter 2007to $80.4 billion. With the exclusion of the estimated net catastrophe losses, there was an increase of $3.8 billion, or 5 percent, in loss and loss adjustment expenses to $79.8 billion in the fourth quarter of 2008. This was from the original $76 billion of a year before.

At the same time, according to ISO’s PCS unit, in fourth-quarter 2008, from the $1.9 billion of the fourth quarter of 2007, the direct insured losses from catastrophes dropped to $0.3 billion.

Again, in contrast to the fourth-quarter 2007 net gains on underwriting which amounts to 0.9 percent of the $109.8 billion in premiums earned during the same period, fourth-quarter 2008 net losses on underwriting amounted to 1.2 percent of the $107.7 billion in premiums earned during the fourth quarter of 2008.

During the fourth quarter of 2008, the combined ratio for the property and casualty industry deteriorated to 103.6 percent from the 100.9 percent reported for the fourth quarter of 2007. It was back in 2005 that the fourth-quarter combined ratio last rose to 103.6 percent. This was when Hurricane Wilma hit.

The figure reported of $1.3 billion in net losses on underwriting is calculated after deducting $0.9 billion in premiums that were returned to policyholders as dividends. In the fourth quarter of 2007dividends to policyholders were down from $1.3 billion.

From the figure of $103.2 billion that was reported for the fourth quarter of 2007, written premiums dropped a total of $4.5 billion, or 4.4 percent, to $98.6 billion as reported for the fourth quarter of 2008. Written premium growth can be seen as being the weakest for any fourth quarter since the start of ISO’s quarterly premium growth which was recorded in 1986. It is reported at being a negative 4.4 percent for the fourth quarter of 2008. The previous record lows for fourth-quarter premium growth were a negative 2.6 percent reported in 2007 and negative 0.1 percent reported in 1991.

David Sampson, Property Casualty Insurers Association of America (PCI) president and chief executive officer says that when compared with the levels of previous years, written premiums have now declined for a remarkable seven successive quarters. Those reported for the second-quarter of 2007 were reflections of intensifying competitive pressures in insurance markets but the more recent drops reflect the impact of the recession on the demand for insurance.