Property/casualty insurers underwriting losses grew in Q1

Net underwriting losses for U.S. property/casualty insurers grew to $4.5 billion in Q1 2011 from $1.8 billion a year earlier as their combined ratio deteriorated to 103.3% according to figures from the ISO and the Property Casualty Insurers Association of America (PCI).

Insurers who operate outside the U.S. were hit by losses from events in New Zealand, Australia and Japan in Q1 pushing up underwriting losses across the industry. Despite the high losses the ISO remain confident that insurers have sufficient reserves but they do note the dangers that an active hurricane season could pose to the industry.

“With mounting net losses on underwriting driving the decline in insurers’ net income and overall profitability in first-quarter 2011, there’s no denying that insurers continued to face substantial headwinds in their core business — underwriting,” said Michael R. Murray, ISO’s assistant vice president for financial analysis.

Interestingly the report from the ISO gives us a hint into the Q2 losses that insurers will have to bear from the severe thunderstorms and tornadoes across the U.S. It states that PCS data shows $14.7 billion in losses, as at 20th June, however that figure doesn’t include four events which are still to be added to the tally. That suggests that they may not yet have their figure for Joplin estimated. It’s likely that at the end of Q2 insurers underwriting losses will have risen further.

With reinsurance rates rising for property catastrophe lines of business and a growing underwriting loss for U.S. P&C insurers it’s likely that alternative risk mechanisms such as catastrophe bonds could prove favorable once the hurricane season is over. We are sure to see some demand from insurers seeking to lock in a source of reinsurance cover for multiple years, particularly at the higher levels of their reinsurance program needs, something which cat bonds are an ideal solution ideal for.