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US P&C income 'halves' in Q1 2008

Net income for the US property & casualty (P&C) insurance industry has almost halved in the first quarter of 2008 after heavy losses in underwriting results, according to the US P&C associations.

The Property Casualty Insurers Association of America (PCI) and Insurance Services Office (ISO) said that the reported net income after taxes of $8.2bn represented a 49.3 percent, or $8bn, drop compared to the prior-year period’s $16.2bn.

The slump was triggered by a $8.9bn swing in underwriting results, from an $8.3bn profit in Q1 2007 to $0.6bn losses for the same period this year.

Michael Murray, ISO assistant vice president for financial analysis, said rates for commercial insurance policies declined by around 13.5 percent for all accounts.

“Written premiums have now declined versus year-ago levels for four successive quarters,” said Murray.

“This is absolutely unprecedented based on ISO’s quarterly data extending back to 1986.”

Murray said the industry had been “affected significantly” by deterioration in results for mortgage and other financial guaranty insurers. Excluding insurers in those areas, the industry’s rate of return on average surplus fell 9.5 percent compared to 13.5 percent on the prior-year period.

The report also revealed that combined ratio for the industry rose to 99.9 percent up from the prior-year period’s 91.7 percent, which it said “reflected imbalances between declining premiums and increasing cost of providing insurance”.

David Sampson, PCI president and CEO, said: “Seasonal patterns in the data suggest that insurers’ rate of return will decline further this year.

“Insurers’ profitability in the first quarter usually exceeds their profitability later in the year, partly because of the timing of weather-related catastrophe losses.”

Sampson said the industry saw $3.4bn in catastrophe losses in the second quarter of 2008, $2.6bn more than for the prior-year period.

The drop in net income was also reflected in P&C insurers investment results, which saw a drop in net investment gains of $2.8bn to $12.8bn from $15bn in the prior-year period.

Sampson added: “We may see further declines in investment income if softening prices in insurance markets cut into premiums and the new cash available to fund growth in investment portfolios.”

He said further weakness in the economy or problems in the credit markets could encourage the Federal Reserve board to cut interest rates further, further impinging investment income.

Last week the Fed announced it would be maintaining the rate of interest at 2 percent.

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