Mortgage and other financial guaranty insurers were disproportionately hit by the current recession and credit crisis. In 2008 there was a fall in the mortgage and financial guaranty insurers’ annualized rate of return to a negative 141.1 percent from a 2007 negative 13.4 percent. When mortgage and financial guaranty insurers are excluded, the insurance industry’s rate of return for 2008 declined to 4.2 percent from the 2007 rate of 13.2 percent. At the same time, the industry’s net income fell by 68.8 percent.
Results for Underwriting
Included in the various factors that led to the net losses on underwriting were premium weaknesses along with increases in loss in addition to increases in loss adjustment expenses.
During the year 2008, reported net written premiums fell by $6 billion. This is equivalent to 1.4 percent. A drop to $434.6 billion from $440.6 billion in 2007. At the same time, net earned premiums declined in the amount of $0.8 billion, which is 0.2 percent, from $438.9 billion in 2007to $438.1 billion in 2008.
According to the net written premium growth that was reported for 2008, that year was the weakest reported for any year since the beginning of reporting by ISO of annual financial data for the property and casualty industry. It was a negative 1.4 percent. The negative 0.6 percent reported for 2007 had been the previous record low for annual premium growth. In the past record growths as high as 22.2 percent had been reported for 1985 and 1986. Murray says that surveys show that declining demand is the result of escalating competition combined with declines in insurance premiums. The Council of Insurance Agents and Brokers’ report of a 2008 fourth-quarter market survey shows that on average commercial premium rates declined 6.4 percent for all sizes of accounts. At the same time that net written premiums were falling in 2008, the nation’s current-dollar gross domestic product [GDP], taking into account both inflation and real growth, grew by 3.3 percent.
In combination with this decline in premiums was an overall net loss and loss adjustment expenses jump of $42.2 billion, from $297 billion in 2007 to $339.2 billion in 2008, an increase of 14.2 percent. Also according to ISO estimates, there was an increase of $21.8 billion last year in the net catastrophe losses which was included in insurers’ financial results. This reflects an increase from $6.9 billion in 2007. Loss and loss adjustment expenses increased $27.4 billion in 2008, excluding estimated net catastrophe losses. The resulting figure of $317.4 billion is an increase of 9.4 percent over the $290.1 billion reported for 2007.
Catastrophes occurring in 2008 are reported by ISO as causing $26 billion in direct insured losses to property. This is nearly four times the $6.7 billion in direct insured losses to property liked to catastrophes reported for 2007 and almost twice the $14 billion average for this category of loss reported during the past 20 years.
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