Three Reports Point to Keenly Disapp

BY PHIL GUSMAN AND CHAD HEMENWAY WHEN LOOKING at the prop- erty and casualty industry’s performance for the first nine months of 2011, or even just the third quarter, the news is the same: sharply declining profits and underwriting results compared to the same periods in 2010, according to three recent reports.

Fitch Ratings analyzed a group of 47 publicly traded U.S. and non-U.S. insurers and reinsurers through the first nine months of 2011 and found the aggregate net profit was $9.7 billion, compared with a net profit of $26.4 billion during the same period last year.

Shortly after the Fitch report, Moody’s Investors Service released a Special Comment stating that aggregate net income for its U.S.-rated companies in 2011’s third quarter was $1.6 billion, down sharply from the 2010 third quarter when net income was $5.4 billion.

And most recently, the Reinsurance Association of America (RAA) said all but four from a group of 19 U.S. property and casualty reinsurers reported a net underwriting loss during the first nine months of the year—with the group as a whole posting an aggregate underwriting loss of more than $2 billion.

Moody’s says the third-quarter drop is due largely to catastrophe losses, but points out that the companies collectively did manage to report a net profit.

“Net income was down nearly 70
percent in [3Q 2011] versus [3Q 2010],
again reflecting catastrophe losses as
well as small realized-capital losses,”
the Moody’s report states. “Investment-
market volatility during the quarter led to
a downturn in some insurers’ investment
performance, particularly stocks, as the
premium growth to continue as
companies seek further rate increases.

3Q 2011 3Q 2010 Change

Chartis 8,659 8,598 1% LibertyMutual 8,155 7.720 6% Allstate Corp. 6,728 6,767 -1% TravelersCos. 5,672 5,462 4% ACE Ltd. 4,343 3,295 32% ProgressiveCorp. 3,872 3,715 4% ChubbCorp. 2,879 2,732 5% CNA Financial Corp. 1,586 1,469 8% HartfordFinancial 1,551 1,447 7% Hanover Insurance 1,051 804 31%

Total of Rated Cos. 50,337 47,257 7%
P&C NET-PREMIUMS WRITTEN
Moody’s-Rated Companies
($ millions)

NPW for P&C operations only | Source: GAAP financials

S&P 500 declined by 14 percent.”
Moody’s says the decline in investments
reflects the low-interest-rate environment.

In a bit of good news for the industry
in 3Q, Moody’s says increased exposures
and stabilizing rates drove a 7 percent
increase in net-premiums written for
the period compared to 2010’s third
quarter: “According to pricing surveys
and conference calls,
pricing continued to
stabilize this quarter with
most commercial-lines
insurers reporting flat or
slightly increased rates,
depending on the line of
business.”
The rating agency adds
that the excess-and-surplus
business appears to be
moving back to the E&S market as well.
In October, at the National Association of
Professional Surplus Lines Offices’ annual
conference, E&S executives said this is the
sign they have been looking for before
buying into the idea that the market is
turning.