WALL STREET JOURNAL
Property Insurers Confront Rising Catastrophe Losses
By LAVONNE KUYKENDALL
June 30, 2008; Page C1
Bad weather has cost U.S. property insurers more than $5 billion so far in second-quarter catastrophe-related claims -- equal to about three-quarters of all catastrophe claims during 2007 -- and could push the industry to an underwriting loss.
The claims are occurring even as insurers continue to reduce prices, which gives them fewer resources for paying the claims.
"It has been busy," said Allstate Corp. spokesman Rich Halberg.
According to the property-claims services division of the Insurance Services Office, an insurance-service provider, there have been 15 weather-related catastrophes since April 1, resulting in more than one million claims for a total of around $5.5 billion. For the year, there have been total claims of $8.9 billion for 24 catastrophe events. Claims for all of 2007 amounted to $6.7 billion.
The Insurance Services Office defines a catastrophe as an event that causes more than $25 million in insured losses and causes a major disruption. So far this year, problems have included tornadoes, severe storms, hail, flooding and wildfires. It is usually the third quarter, not the second, that poses problems due to the potentially huge cost of hurricanes.
At the same time, a soft pricing cycle over the past two years has pushed some insurance policy premiums down by double-digit rates, putting a squeeze on insurers' profit margins. The rising losses could also help slow the rate of price-cutting.
The Property Casualty Insurers Association of America, which represents around 40% of insurers, reported an industrywide combined ratio of 99.9% for the first quarter, which means that losses and expenses ate up virtually all the premiums collected for the quarter.
Don Griffin, vice president of personal lines insurance for insurers association, said that preliminary loss estimates for recent catastrophes are likely to be revised upward, and that insurers may take reserves based on what they expect eventual claims to be. That could boost second-quarter loss reserves even more.
Write to Lavonne Kuykendall at email@example.com
[NEAS: Read the words carefully: "and could push the industry to an underwriting loss" and "losses and expenses ate up virtually all the premiums collected for the quarter" (again, underwriting loss). The insurance industry expects underwriting losses in most years, and it earns its profits from investment income. The important item is the return on capital, which is more stable for auto insurers than for auto manufacturers.]