Contributing to the $8 billion, or 49.3 percent, decline in net income in first-quarter 2008, the industry posted $0.6 billion in net losses on underwriting — an $8.9 billion adverse swing from the $8.3 billion in net gains on underwriting in first-quarter 2007. Investment results also deteriorated, with net investment gains declining $2.8 billion, or 18.8 percent, to $12.2 billion in the first three months of 2008 from $15 billion in the first three months of 2007. Partially offsetting these developments, insurers’ miscellaneous other income rose $2.1 billion to $0.2 billion through the first three months of 2008 from negative $1.8 billion through the first three months of 2007, and insurers’ income taxes fell $1.6 billion to $3.6 billion from $5.2 billion.
“Insurers’ 6.4 percent annualized rate of return for first-quarter 2008 was the second lowest first-quarter annualized rate of return in the past 23 years and 4.5 percentage points below insurers’ 10.9 percent average first-quarter rate of return since the start of ISO’s quarterly data in 1986,” said Michael R. Murray, ISO’s assistant vice president for financial analysis. “But results for the insurance industry overall were affected significantly by deterioration in results for mortgage and other financial guaranty insurers. ISO estimates that, excluding mortgage and other financial guarantee insurers, the insurance industry’s annualized rate of return on average surplus declined to 9.5 percent in first-quarter 2008 from 13.5 percent in first-quarter 2007, as the industry’s net income fell 24.2 percent.”
“Seasonal patterns in the data suggest that insurers’ rate of return will decline further this year,” said David Sampson, PCI president and chief executive officer. “Insurers’ profitability in the first quarter usually exceeds their profitability later in the year, partly because of the timing of weather-related catastrophe losses. The Atlantic hurricane season runs from June 1 to November 30, and the experts are predicting an unusually active hurricane season this year.”
The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers.
Underwriting Results
Net written premiums fell $0.8 billion to $110.5 billion in first-quarter 2008 from $111.3 billion in first-quarter 2007, with the 0.7 percent decline in written premiums in first-quarter 2008 contrasting with a 0.8 percent increase in first-quarter 2007. Similarly, net earned premiums dropped $0.6 billion to $107.9 billion in first-quarter 2008 from $108.5 billion in first-quarter 2007, with the 0.6 percent decline in earned premiums in first-quarter 2008 contrasting with a 1.9 percent increase in the first three months of 2007.
“Written premiums have now declined versus year-ago levels for four successive quarters. This is absolutely unprecedented, based on ISO’s quarterly data extending back to 1986,” said Murray. “Prior to second-quarter 2007, written premiums declined in just two quarters — fourth-quarter 1991 and third-quarter 2005. Market surveys and economic data indicate that escalating competition and declines in the price of insurance cut into premiums. According to the Council of Insurance Agents and Brokers’ first-quarter 2008 market survey, rates for