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U.S. property/casualty insurers' 2011 net income dropped to $19.1B: Analysis

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Net income for U.S. property/casualty insurers fell to $19.1 billion in 2011 from $35.2 billion the previous year, according to an analysis released Monday by the Property Casualty Insurers Assn. of America and Insurance Services Office Inc.

Catastrophe losses were a major factor in the property/casualty industry’s underwriting losses, which grew to $36.5 billion in 2011 from $10.5 billion in 2010, according to the analysis. The report attributes the deterioration in underwriting results primarily to a spike in net losses and loss adjustment expenses, which rose to $38 billion in 2011 from $14.3 billion in 2010.

The industry’s combined ratio also deteriorated in 2011, rising to 108.2% vs. 102.4% a year earlier.

Michael R. Murray, associate vp for financial analysis at Jersey City, N.J.-based ISO, a unit of Verisk Analytics Inc., noted the 2011 combined ratio is the worst annual underwriting result since the 115.9% combined ratio for 2001.

“Poor underwriting results are particularly problematic in the current environment because of the toll that long-term declines in interest rates and investment leverage have taken on insurers' ability to use investment earnings to balance underwriting losses,” Mr. Murray said in a statement. “Bottom line, insurers now need much better underwriting results just to be as profitable as they once were."

Robert Gordon, Des Plaines, Ill.-based PCI's senior vp of policy development and research, said that while policyholder surplus fell $8.9 billion to $550.3 billion at the end of 2011, insurers still have the resources necessary to meet their obligations.

“Despite the most active and deadliest tornado season in more than half a century and a host of other challenges, insurers emerged from 2011 strong, well-capitalized and capable of paying future claims,” Mr. Gordon said in the statement.

During the fourth quarter of last year, insurers benefitted from “a number of positive developments,” according to the PCI and ISO analysis. Fourth-quarter premiums grew “at the fastest rate since 2004” while loss and loss adjustment expenses grew at “significantly slower” rates, Mr. Murray said.