Best: U.S. P/C Net Income Drops in Quarter 1

According to an A.M. Best Special Report, the U.S. property/casualty industry’s net profit plunged 45% to $9.3 billion in the first quarter of 2008, driven primarily by premium erosion, deteriorating underwriting results, higher catastrophe-related losses and weaker investment returns.

In addition, the industry’s performance was negatively impacted by significant underwriting losses in the mortgage and financial guaranty segments, driven by the fragile state of the housing and mortgage markets across the country. Annualized after-tax return on equity fell to 11.4% for the 12 months ended March 31, 2008.

* NPW fell 2.2% to $112.3 billion through the first quarter, driven by across-the-board softening in most personal and commercial lines; leakage of premium to non-U.S. insurers; and growing interest in alternative forms of risk transfer.

• Amid challenging market conditions, the property/casualty industry reported a modest underwriting loss through the first quarter of 2008 after posting underwriting profits over the previous two calendar years.

• The industry’s overall combined ratio deteriorated to 99.7 during the first quarter, up from 91.6 posted in the same period of 2007.

• Excluding the impact of groups within the A.M. Best mortgage and financial guarantee composites, the overall industry would have reported a combined ratio of 96.9.

• Policyholder surplus (PHS) declined 0.5% to $525.0 billion through the first quarter from year-end 2007; despite this decline, PHS grew 3.4% for the 12 months ended March 31, 2008.

• First-quarter 2008 catastrophe losses in the United States were an estimated $3.35 billion, up from $1.26 billion during the same period of 2007.

• Underwriting results in the personal lines segment deteriorated through the first quarter of 2008, with a combined ratio of 98.5.

• The combined ratio in the commercial lines segment deteriorated to 101.7 in the first quarter, as results reflected significant losses from mortgage and financial guaranty insurers.

• The U.S. reinsurance segment’s combined ratio increased to 94.8 in the first quarter of 2008, up from 89.2 during the same period of 2007.

• The U.S. property/casualty industry faces a significantly more challenging environment for the remainder of 2008, due to a combination of deteriorating rate adequacy, loosening terms and conditions, a more challenging investment climate and looming hurricane-related losses.

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