Stamford, Conn. — Marred by the clash of equity and credit-related losses on their asset portfolios, catastrophe losses resulting from an active hurricane season and an anticipated spike in directors and officers liability (D&O) claims, the U.S. property/casualty industry’s reported statutory surplus at the end of the third quarter is projected to decline as much as $42 billion, or 8%, from the beginning of the year, according to estimates from global professional services firm Towers Perrin.
Additionally, if the stock market doesn’t recover from steep losses precipitated in recent weeks by the financial crisis gripping the world, the surplus decline could approach $80 billion, or 15%, by the end of the year, the Stamford, Conn.-based company said.
Statutory surplus, reported quarterly by U.S.-based regulated insurance companies, is a conservative measure of the capital cushion held by insurers to protect policyholders in the event of adverse results; industry-wide figures are compiled and published by various industry trade associations.
Among the other industry findings reported by Towers Perrin:
• The projected industry combined ratio for the third quarter is 116.6%, producing an underwriting loss of $18.5 billion. Contributing factors are large catastrophe losses, continuing heavy claims for the mortgage and financial guaranty specialty insurers, emerging D&O claims and a general deterioration in price adequacy
• Poor underwriting results, coupled with declining investment income, will contribute to a projected overall third-quarter industry net loss of $4.8 billion
• $30 billion of realized and unrealized losses on investments in Q3 statutory filings are plausible; write-offs due to investments in failed financial institutions could be in the range of 0.5% of invested assets
“The most recent findings from Towers Perrin’s quarterly commercial lines insurance pricing and profitability trends survey indicate that commercial insurance prices declined about 5% in the first half or 2008, on top of similar declines in each of the prior two years,” says Stephen Lowe, managing director of Towers Perrin’s global property & casualty insurance practice. “The current situation will cause price levels to stabilize, if not increase. While losses are widespread, we aren’t expecting any company failures; however, some downgrades from the rating agencies are likely.”
Source: Towers Perrin
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