Last Updated Sep 28, 2009 3:29 PM EDT
Those who follow earnings for property insurers like Allstate, Chubb and Travelers can see that the overall results, including mutual company giants like State Farm and Liberty Mutual, are impressive, but in a negative way.
Insurers were particularly hard hit in the area of investment gains and losses, no surprise since insurers have to keep huge reserves in case they have to payout for hurricanes and earthquakes. Net investment income and realized capital gains fell 50 percent to $12.4 billion from $24.9 billion in the first half of last year.
So where's this cloud's silver lining? Insurers may have come to realize, and not for the first time, either, that they can't count on investment gains to see them through a bad time, and so have tightened their underwriting standards. That's fairly common when the industry faces a crisis, either from a major loss like 2005's Hurricane Katrina or now, when their reserves are slowly eaten away by lower interest rates and declining prices.
The III and ISO said underwriting losses, which represent the quality of your clientele and how much you charge them, slid $3.4 billion to $2.2 billion in the first half, down from $5.6 billion last year.
A good portion of the earnings hit was absorbed by mortgage and financial guaranty insurers, according to ISO's Michael Murray, again no surprise, since mortgage problems caused the current recession. Their annualized rate of return fell to negative 76.5 percent in the first six months from negative 67.4 percent in the same period in 2008, when the mortgage crisis was starting. This is a painful punch for mortgage insurers such as PMI Group and MGIC; not so for the Allstates of the world.
As mouthpieces for the insurance industry, the III and ISO are known for putting a positive spin on the news, saying that "the insurance industry remained profitable and policyholders' surplus increased." They also said that insurers have slightly over $1.2 trillion available to cover losses.
But the roof never leaks when the sun shines. U.S. catastrophes in the first half of the year caused $7.5 billion in damages, down $3.1 billion from the like period in 2008. Cynics would point out that the second half of the year usually sees more catastrophes than the first.
With most of the hurricane season come and gone, however, it'll likely be an easier year for property insurers. And if the first six months are any indication, they'll welcome it.