Insurance Center

Although the recent downturn in the economy is also having its effects within the property and casualty community there have been some improvements. The overall direction however, has been down. Though there was for instance, a rise in mortgage and financial guaranty insurers’ net written premiums of 4 percent in the year 2008, to $8.5 billion, the loss and loss adjustment expenses rose heavily by 141.2 percent to $26 billion. In response to this, from 149.1 percent in 2007, there was a jump in 2008 of their combined ratio, to 299.3 percent. Industry net written premiums fell 1.5 percent, with the exclusion of mortgage and financial guaranty insurers, while loss and loss adjustment expenses rose by 9.4 percent. In 2008, from 94.6 percent in 2007, the combined ratio increased to 101 percent.

Investment Results
At the same time, last year from $55.1 billion in 2007, the property and casualty industry’s net investment income, which consists primarily of dividends from stocks and interest on bonds, dropped 7 percent or to $51.2 billion, by the amount of $3.9 billion. Not included in net investment income are realized capital losses on investments. In 2008 this totaled $19.8 billion, which was an increase of $28.7 billion from the minus $8.9 billion in realized capital gains from the year before. In 2008 overall net investment gains fell $32.6 billion to $31.4 billion when combining net investment income and realized capital losses.

When you take the $19.8 billion in realized capital losses in 2008 and combine them with the $52.9 billion in unrealized capital losses amassed during the year, in 2008 it is seen that insurers’ overall capital losses totaled $72.7 billion. This represents an $81 billion negative fluctuation from the 2007 $8.3 billion in overall capital gains.

Speaking for the property and casualty industry, Property Casualty Insurers Association of America (PCI) president and chief executive officer, David Sampson says that insurers’ investment income is derived from two sources, the sum of cash and invested assets held by insurers combined with the yield on cash and invested assets. Sampson describes the 2008 seven percent decline in investment income as being a reflection of declines in both investment yields and insurers’ holdings of cash and invested assets. He notes that yield on insurers’ cash and invested assets fell by 4.2 percent in 2008 from the 2007 figure of 4.5 percent, while in 2008 average holdings of cash and invested assets for insurers’ dropped by 1.2 percent.

Overall capital losses for insurers in 2008, according to Sampson, are a combined reflection of developments in financial markets and the need by insurers to write-down investments that suffered due to the recession, along with foreclosures, and the crisis in the financial system.