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High natural catastrophe losses and poor economic conditions continued to eat away at profits and performance for U.S. property/casualty insurers, as net income for the industry through the first nine months of 2011 plummeted has 61% compared with a year earlier, according to A.M. Best Co. Inc.
In a report released Thursday, Oldwick, N.J.-based Best said the domestic property/casualty underwriting industry incurred $30 billion in catastrophe-related losses through the first three quarters of the year, 15 times the catastrophe losses recorded in the same period last year. The industry recorded $12.8 billion in net income through September, less than half of the $33 billion in nine-month profits during the same period last year.
The depressed profits inflated the industry’s 2011 statutory combined ratio through nine months by 8.5 points, from 99.8% in 2010 to 108.3%.
Low interest rates, declining operational performance and significant unrealized capital losses have strained the industry’s overall profitability. Nine-month policyholders’ surplus decreased from $560.1 billion last year to $542.7 billion through September, while after-tax returns on equity slipped to 2.3%.
Though profits slumped in the first three quarters of 2011, stabilizing pricing trends on commercial insurance lines have boosted industry premium volume, Best said in the analysis.
Net premiums written for the entire industry through September increased 3.3% over the same period last year, from $323.6 billion to $334.4 billion, while commercial net premiums written grew 4.3%, from $132.2 billion to $138.0 billion. The report indicated that most of the growth has been driven by workers compensation, along with fire and allied lines of business.
Volume increases were highest in the third quarter, which Best said suggests a turn in the commercial property/casualty market may be imminent. However, the report predicts the growth in premium volume will fall far short of offsetting the effects of underwriting losses and overall economic conditions in 2012.
“At this point, there can be little doubt that the segment will report a significant underwriting loss at year-end 2011 and returns will be scaled back considerably from recent years,” Best said in the report.
“While A.M. Best is certainly encouraged by the premium growth trends in recent quarters, overall market conditions remain competitive and the segment will continue to be challenged by reserving concerns and volatile investment markets.”
The property/casualty insurance industry has entered an “unusual” period, according to an analysis by Keefe, Bruyette & Woods Inc.