News

Disasters Wallop Industry Earnings in First Half

Posted on Oct 11, 2011

After-tax net income for U.S. property/casualty insurers plummeted to $4.8 billion in the first-half of 2011 from $16.8 billion in the year-ago period, ISO and the Property Casualty Insurers Association of America said.

Driving the declines in insurers' net income and overall rate of return were net losses on underwriting which grew to $24.1 billion in the first-half of 2011 from $5.1 billion in the first-half of 2010.

The industry's combined ratio, the measure of losses and other underwriting expenses per dollar of premium, shot to 110.5 percent in the first-half, from 101.7 percent in the year-ago period, ISO and PCIAA reported.

Michael R. Murray, ISO's assistant vice president for financial analysis, said the combined ratio was the worst six-month underwriting result since the first half of 2001.

"Even after adjusting for record catastrophe losses, the latest data indicates that insurers continued to face strong headwinds in their core business -- underwriting," Murray said.

First-half net investment gains grew to $28.4 billion, an increase of $2.4 billion, partially offsetting the underwriting losses, ISO reported.

A separate report released by A.M. Best & Co., Oct. 3, reported the industry's net income fell 67 percent to $6.9 billion, while its combined ratio spiked more than 9 points to nearly 110.0. Catastrophe-related losses rocketed to an estimated $27 billion, an increase of more than 100 over the first six months in the year-ago period, the report said.

Catastrophes striking the United States in first-half of 2011 caused $23 billion in direct insured losses, before reinsurance recoveries, ISO's Property Claim Services unit said.

Citing the National Climatic Data Center, the Insurance Information Institute pointed to specific weather-related events each generating at least $1 billion in economic losses and contributing to hit on industry profits in the first six months. The events include:

The Groundhog Day Blizzard, Jan. 29-Feb. 3: The storm hit numerous central, eastern and northeastern states, and brought Chicago to a virtual standstill.

Midwest/Southeast Tornadoes, April 4-5: As many as 46 tornadoes swept through a total of 10 central and southern states.

Southeast/Midwest Tornadoes, April 8-11: 59 tornadoes believed to have formed within a three-day timeframe, hit nine central and southern states.

Midwest/Southeast Tornadoes, April 14-16: A second round of about 160 tornadoes are estimated to have hit 10 states.

Southeast/Ohio Valley/Midwest Tornadoes, April 25-30: More than 300 tornadoes caused 327 deaths, with 240 of the fatalities occurring in Alabama. As many as 12 other central and southern states are affected, and the damage rose to nearly $7 billion in insured losses.

Midwest/Southeast Tornadoes, May 22-27: The EF-5 tornado which struck Joplin, Mo., May 22, is the single deadliest tornado to strike the U.S. since "modern tornado record keeping began in 1950," the NCDC said. Fourteen other central and southern states were hit by this tornado outbreak in late May.

Southern Plains/Southwest Drought, Spring-Summer: Texas, Oklahoma, New Mexico, Arizona, southern Kansas, western Arkansas and Louisiana was hit by heat waves and wild fires.

Mississippi River Flooding, Spring-Summer: Heavy rains and melting snowpack caused severe flooding along the Mississippi River and its tributaries.

Upper Midwest Flooding, Spring-Summer: Floods prompt the evacuation of nearly 11,000 people in Minot, N.D., as the Souris River overflowed. Breached levees along the Missouri River flood thousands of acres of farmland as well.

October 7, 2011

By CYRIL TUOHY, managing editor of Risk & Insurance®

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