$6.1bn net profit in 2008 compared to $65.5bn in 2007

The US property/casualty industry generated a net profit of $6.1bn for in 2008, despite a series of unprecedented events, according to a report from AM Best.

The industry was impacted by exceptionally challenging market conditions, the worst financial crisis in recent history, the fourth-highest year on record for US catastrophe-related losses, and turmoil in the mortgage and financial guaranty segments.

While P&C insurers posted a net profit, this was down significantly from $65.5bn recorded in 2007.

Net premiums written fell 1.8% to $439.9bn in 2008, the first time NPW has declined in consecutive years since 1932 and 1933.

Driven by challenging market conditions, including continued rate pressure, large and frequent weather-related losses, and significant losses posted by mortgage and financial guaranty insurers, the industry recorded an underwriting loss of $20.0bn in 2008, down from an underwriting gain of $21.6bn in 2007.

The industry’s combined ratio deteriorated almost 10.0 percentage points to 104.7 from 95.1 in 2007, representing the industry’s highest combined ratio since it posted a 107.2 in 2002.

The mortgage and financial guaranty segments significantly influenced the overall industry’s underwriting performance in 2008; as the two segments collectively reported an underwriting loss of $15.1bn and a combined ratio of 305.0.

Volatile financial markets pulled the industry’s net investment gains down 47% to $34.1bn in 2008 from $64.6bn in 2007.

The US P/C industry’s policyholders’ surplus declined $59.4bn, or 11.3%, to $465.4bn in 2008 from $524.8bn in 2007.

The personal lines segment’s underwriting results deteriorated significantly in 2008, with a reported calendar-year combined ratio of 103.9, compared with 96.2 in 2007.

The commercial lines segment’s combined ratio deteriorated 12.1 percentage points to 106.1 in 2008, driven in part by extensive underwriting losses for mortgage and financial guaranty insurers.

The US reinsurance segment’s combined ratio increased to 99.9 in 2008, up 6.3 points from 93.6 in 2007.

While the road ahead is full of uncertainty, and 2009 is expected to be another challenging year for the US property/casualty industry, A.M. Best believes the overall industry is sufficiently capitalised to absorb the challenges posed by the cyclical nature of underwriting and the volatility in the financial markets.