First-half 2008 P&C Profits Dive

New York — The U.S. property/casualty insurance industry reported mixed results in the first six months of 2008, according to a Fitch Ratings Ltd. report, “Property/Casualty Insurers' Mid-Year 2008 Results Review,” released yesterday. Profitability declined due to poor investment performance and deteriorating accident-year underwriting results, which were partially offset by favorable prior years' loss reserve development.

A number of insurers also experienced declines in GAAP common equity during the first half of 2008, largely as a result of significant unrealized investment losses following equity market declines and widening credit spreads that caused unfavorable mark-to-market adjustments in both insurers’ and reinsurers’ investment portfolios.

While competitive factors could promote further deterioration in rates, New York-based Fitch expects most insurers in its publicly traded universe to post a calendar-year underwriting profit in 2008, while accident-year results will shift closer to breakeven, assuming that catastrophe activity in the second half of the year approximates historical averages. Fitch continues to predict insurers' overall profits will decline in 2008, and that the industry will struggle to produce an adequate return on capital, which Fitch estimates for most insurers/reinsurers as a net return on average equity of between 11% and 12%.

Fitch also has compiled GAAP earnings release and 10-Q filing data from publicly traded property/casualty insurers in the debt rating universe as well as several other insurance organizations, to evaluate first-half 2008 performance.

Net income for this group of 50 property/casualty organizations declined by 95% in the first six months of 2008, largely due to pre-tax realized investment losses of more than $17 billion. The net income return on equity for Fitch's universe dropped to 0.9% in the first half of 2008 from 15.9% in the first half of 2007.

Also according to the report, reserve development for the insurers/reinsurers in Fitch's publicly held insurer universe remained favorable in 2007. Fitch estimates that reserve releases trimmed 2.9 combined ratio points off of first-half 2008 underwriting results. The calendar year aggregate combined ratio of Fitch's universe was 91.7%, which corresponds with an accident year combined ratio of approximately 95%. These results compare to calendar and accident year results of 87% and 89.4%, respectively, in the year-ago period.

For more information on the report, visit Fitch Ratings’ Web site.

Source: Business Wire