Weiss: Hurricanes Batter P/C Insurers with a $4.2B Underwriting Loss in 2005

Last year’s devastating hurricane season produced a $4.2 billion underwriting loss in 2005 for property/casualty insurers. According to Weiss Ratings Inc., the loss erased the record underwriting profit of $6.4 billion reported by the industry in 2004.

Property and casualty insurers reporting the largest year-over-year deterioration in underwriting performance were: State Farm Mutual Auto Ins. Co., Allstate Ins. Co., National Indemnity Co., Continental Casualty Co. and Employers Reinsurance Corp.

Solid performance in the equity market and rising interest rates helped compensate for the underwriting loss with property and casualty insurers reporting a 17.2 percent rise in investment income, from $42.4 billion in 2004 to $49.7 billion in 2005. Likewise, capital gains jumped 31.6 percent to $11.7 billion, compared to the $8.9 billion reported one year ago. Consequently, despite the catastrophic losses associated with the most active hurricane season on record, insurers earned $46.7 billion in 2005 and managed a 13 percent profit increase, although the growth was considerably less than the industry reported in 2004 when net income surged 28 percent to $41.3 billion.

Insurers reporting the largest increases in earnings were: Columbia Ins. Co., Continental Casualty Co., Ohio Casualty Ins. Co., State Farm Mutual Auto Ins. Co., and Liberty Mutual Ins. Co.

“Property and casualty insurers transferred much of their risk to reinsurers who now bear the burden of the insured losses,” said Melissa Gannon, vice president of Weiss Ratings, Inc. “Nonetheless, with more intense hurricane seasons projected, both primary insurers and reinsurers face an uphill battle to improve underwriting performance, leaving many consumers in high-risk areas with little relief from rising premiums.”

Industry Capital and Surplus Growth Slows Dramatically
Two consecutive hurricane seasons with staggering losses have dramatically slowed the growth of the industry’s capital and surplus, which rose only 3.9 percent to $515 billion as of Dec. 31, 2005 compared to year-end 2004 when insurers registered an 11.9 percent increase.

Property and casualty insurers reporting the largest reduction in capital and surplus were: Travelers Ins. Co. (Accident Dept) Hartford, Conn., Allstate Ins. Co., Northbrook, Ill., National Union Fire Ins. Co. of Pitt New York, N.Y., West American Insurance Co. Fairfield, Ind. and American Re-insurance Co., Princeton, Del.