U.S. property and casualty industry’s net income falls by nearly 80% in 2008

Deteriorating underwriting and investment results drove the U.S. property and casualty industry’s net income down by nearly 80%, to US$14 billion, in 2008.
Two consecutive years of underwriting profits are expected to give way to an underwriting loss of US$21.5 billion in 2008, A.M. Best notes in a special report entitled ‘U.S. P/C Industry’s Profits Plunge; Insurers Poised for Turnaround.’
A.M. Best goes on to note that the U.S. property and casualty industry will recognize nearly US$11 billion of favourable loss reserve development in 2008, even higher than the US$9 billion it recorded in 2007.
Uncertainty in the investment markets has virtually slowed mergers and acquisitions activity to a standstill, the report notes. “As balance sheets begin to weaken, the window for sensible M&A may be closing.”
Looking forward into 2009, A.M. Best predicts the current underwriting cycle will “continue to be soft and competition will be sustained in most lines of business through the first half of 2009.”
At the same time, the impact of catastrophe losses and turmoil in the financial markets together “could expedite the end of the soft market and already has resulted in some hardening in the marketplace,” the report says.
“But the effect of price increases will not be realized fully until 2010, and the degree of price hardening will vary greatly across product lines or territories,” A.M. Best goes on to say. “Premiums have already started to increase for directors and officers (D&O) and errors and omissions (E&O) lines, where claims activity is up sharply because of the meltdown of the subprime mortgage market and the subsequent credit crisis.”