Bloomberg News

Insurers Post Biggest Underwriting Loss Since 2008 Storms

June 22, 2011

(Updates with USAA executive’s comment in 10th paragraph.)

June 22 (Bloomberg) -- U.S. property and casualty insurers posted the biggest underwriting loss since 2008 as carriers with business outside the country paid claims tied to natural disasters such as the March earthquake and tsunami in Japan.

Net underwriting losses widened to $4.46 billion in the first quarter from $1.78 billion a year earlier, ISO, a unit of Verisk Analytics Inc., said today in a statement. That’s the worst result since the three months ended Sept. 30, 2008, when Hurricanes Ike and Gustav fueled an underwriting loss of about $14 billion industrywide.

Catastrophes during the first quarter, including the disaster in Japan and flooding in Australia, erased underwriting gains at American International Group Inc. and the insurance operations of Warren Buffett’s Berkshire Hathaway Inc. Travelers Cos., Allstate Corp. and other insurers have faced losses in the second quarter as tornadoes in the U.S. contributed to $14.7 billion in direct insured losses to property, according to ISO.

“There’s no denying that insurers continued to face substantial headwinds in their core business -- underwriting,” said Michael Murray, ISO’s assistant vice president for financial analysis, in the statement.

Insurers remained profitable in the period as income from bond portfolios and gains on stocks increased. Net investment income rose to $12.6 billion in the first quarter from $11.6 billion a year earlier.

Natural disasters outside the U.S. cost the country’s insurers between $2 billion and $5 billion in the first quarter, according to the statement, which was released with the Insurance Information Institute and the Property Casualty Insurers Association of America.

Buffett’s Loss

“We probably had the second-worst quarter for the insurance industry in terms of catastrophes around the globe,” Buffett said April 30 at Berkshire’s annual meeting in Omaha, Nebraska. “Normally the third quarter of the year is the worst because that’s when the hurricanes tend to hit.” Hurricane Katrina contributed to record losses in 2005.

The underwriting results include a smaller gain tied to reserves. Insurers recorded a $4.5 billion benefit in the first quarter after determining more funds than necessary had been set aside to pay claims. The figure was $5.6 billion a year earlier.

Allstate, the largest publicly traded U.S. home and auto insurer, said last week that catastrophes in April and May, including tornadoes in Alabama, cost the insurer $2 billion before tax. Travelers reduced share repurchases after saying that about $1 billion in losses tied to natural disasters will wipe out second-quarter operating profit.

USAA

Tornadoes and storms in the U.S. have contributed to “one of the worst second quarters ever,” said Kristi Matus, chief financial officer of policyholder-owned insurer USAA in an interview today at Bloomberg headquarters in New York. In addition to rising claims costs, insurers face investment yields near record lows and consumers scaling back on coverage. That may lead some carriers to raise rates, she said.

“You’re going to see upward rate pressure,” Matus said. “We’re going to try to hold ours.”

--Editors: Dan Kraut, William Ahearn

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Brooke Sutherland in New York at bsutherland5@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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