Deteriorating underwriting and investment results drove the U.S. property/casualty industry’s net income down by nearly 80% to $14 billion in 2008, according to A.M. Best. Although policyholders' surplus decreased an estimated 10% in 2008, excess capital absorbed much of the decrease, and the overall industry remains sufficiently capitalized to meet the current challenges in underwriting and the financial markets.

A.M. Best Co. estimates the industry will recognize nearly $11 billion of favorable loss-reserve development in 2008—even higher than the $9 billion recorded in 2007—thus further eroding the industry’s overall loss reserve position.

The overall outlook for U.S. life/health insurers is not so favorable. Ratings were relatively unscathed at the beginning of the economic downturn in 2007, but 2008 brought a quick reversal of fortune, according to A.M. Best.

The global economic crisis—specifically, the damage inflicted on insurers' investment portfolios—took a toll on ratings and outlooks. In 2008, A.M. Best rating actions for the life/health industry were overwhelmingly negative, with 43 rating downgrades versus only 14 upgrades. The rating agency says the impact of the global financial meltdown, with its extraordinary investment losses and elevated levels of risk, was the main driver for rating downgrades.

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