The property/casualty insurance industry suffered a $7.9 billion net loss after taxes in 2001-the industry's first-ever net loss for a full year and a sharp swing from the $20.6 billion in net income in 2000, according to a report by Insurance Services Office, Inc. (ISO), Jersey City, N.J., and the National Association of Independent Insurers (NAII), Des Plaines, Ill.ISO's and the NAII's figures are consolidated estimates, based on the reports of insurers that account for 96 percent of the U.S. property/casualty insurance business.
The industry's statutory surplus, or net worth, also fell $27.7 billion, or 8.7 percent, to $289.6 billion at year-end 2001 from $317.4 billion at year-end 2000.
Factors contributing to the industry's net loss included sharply higher losses on underwriting due in part to the terrorist attacks and sharply lower gains on investments due to declines in interest rates and stock markets.
UNDERWRITING WOES
The industry's net loss on underwriting after policyholder dividends ballooned to $53 billion in 2001, up 69.7% from $31.2 billion the year before. The industry's net investment income (primarily dividends earned on stocks and interest on bonds) fell to $37.1 billion last year, down a record 8.9 percent from $40.7 billion.
Partially offsetting these adverse developments, insurers earned $760 million in income from miscellaneous other operations last year, up from $373 million in 2000.
"Most experts estimate losses, including workers compensation and liability lines, from the September 11 attack at somewhere between $30 billion and $70 billion," states John J. Kollar, ISO vice president, consulting and research.
"Subtracting losses covered by foreign insurers and reinsurers, U.S. insurers may ultimately face $25 billion in net underwriting losses from the terrorist attack. But ISO's analysis of insurer financial statements suggests that U.S. companies included only about $10 billion of that amount in their reported results for 200," he says.
Combined ratio worsens
The combined ratio deteriorated to 116 in 2001, 5.9 points worse than the industry's 110.1 combined ratio for 2000 and 8.2 points worse than the 107.8 percent combined ratio for 1999. The industry's combined ratio for 2001 is the third-worst on record, exceeded only by 1984 and 1985.
Net underwriting losses in 2001 amounted to 17% of the $312.4 billion in earned premiums during the year, up from 10.6% of the $294 billion in earned premiums during 2000.
The $27.7 billion decline in surplus in 2001 resulted from the $7.9 billion net loss after taxes, $17.7 billion in unrealized capital losses on investments, $10.9 billion in dividends paid to stockholders and $2.8 billion in miscellaneous charges against surplus.
