U.S. property & casualty insurers profits tumble in 2011 as catastrophes bite

Figures released by the Insurance Services Office (ISO) and the Property Casualty Insurers Association of America (PCI) clearly show the impact that the severe weather and catastrophes during the first half of 2011 have had on their balance sheets. On average it shows that their net income fell by over 70% in the first half of the year when compared with the first half of 2010.

Private U.S. P&C insurers net income after taxes fell to just $4.8 billion in the first half of 2011 compared to $16.8 billion in the first half of 2010 and their annualized rate of return on premiums fell to just 1.7% from 6.4%. Net losses on underwriting were $24.1 billion compared to $5.1 billion a year earlier. Combined ratio for the P&C insurers was 110.5%.

The figures are attributable to the impact of catastrophe losses and loss adjustment expenses, however insurers in the main are still financially sound and reserves while impacted are still healthy. “Despite record-setting catastrophe losses from events like the deadly EF 5 tornado that struck Joplin, Missouri, last May, insurers emerged from first-half 2011 financially sound and well able to continue providing essential financial protection to consumers and businesses alike — a quiet but important testament to insurers’ enterprise risk management and the effectiveness of state solvency regulation,” said David Sampson, PCI’s president and CEO. “As of June 30, 2011, insurers had $559.1 billion in policyholders’ surplus to cover new claims and meet other contingencies — more than 150 times all direct insured losses to U.S. property from Hurricane Irene. The industry is strong, well-capitalized, and capable of paying claims.”

What the figures clearly show is the value of reinsurance and risk transfer for these primary property & casualty insurers. The severe losses experienced in the first half of 2011, particularly from the tornadoes experienced across much of the U.S. midwest and southeast, will mostly be recovered from insurers reinsurance treaties. The size of the losses this year also demonstrate where catastrophe bonds can add value for P&C insurers as multi-year cover for the peak years of losses would prove extremely beneficial to their balance sheets right now.