The property/casualty insurance industry felt a pain in the pocketbook in the second quarter as the three main drivers of profitability - premiums, investment earnings and claims - all performed poorly.
Although catastrophes such as January's earthquake in Northridge, Calif., did not have a direct impact on the second quarter as it did on the first, second-quarter net income dropped 31.8 percent to $3.5 billion from $5.1 billion in 1993, said a report released Tuesday by the Insurance Services Office and the National Association of Independent Insurers. Insurers reported a net loss of $1.4 billion in the first three months of this year.The survey of 96 percent of the industry found its quarterly combined ratio worsened to 106.5 percent from 105.6 percent in 1993. A combined ratio measures the percentage of premium spent on claims and expenses.
For the first half of the year, the figures are even worse. Net income dropped to $2.1 billion from $9.5 billion in 1993 and the combined ratio deteriorated to 111.4 percent from 107 percent.
"The normal things we look at are all bad," said Sean Mooney, senior vice president and economist at the Insurance Information Institute in New York. ''Premium growth has been weak. The industry through the last few years had been saved through growth in investment income. That has disappeared."
Second-quarter investment income was up less than 1 percent to $8.2 billion from $8.1 billion the previous year, the report found.
Capital gains in the period dropped to $400 million in 1994 from $2 billion the year before. Mr. Mooney attributed the drop to insurers taking stock profits last year while this year's rising interest rates have depressed the value of bond holdings.
Pretax underwriting losses were up in the quarter to $4.3 billion from a $3.9 billion loss in 1993. Earned premiums increased only 2.4 percent over the second quarter of 1993, to $60.9 billion from $58.6 billion.
"Premiums for workers compensation have declined in the past two years, and auto insurance rates are rising at the slowest pace in 16 years," he said. "If the third and fourth quarters are free from major catastrophes, the industry could begin to show a respectable level of profitability for these quarters."
The only positive aspect seen this quarter is in claim costs, he said, and even here insurers paid out $48.2 billion from $45.9 billion paid last year as estimates from the Northridge earthquake continued to climb. Mr. Mooney said his optimism comes when the Northridge claim losses are factored out, showing a decrease in claims costs to $45.2 billion for the quarter, less than the previous year.
"Without the catastrophes, the results would have been respectable," the economist said.
Claim costs are also down in workers compensation and auto insurance, where cost containment and reform measures have taken hold in various states, he said.
"Claim costs are within our control in terms of things like fighting fraud and better management of claims," he said. "All of these factors are definitely bearing fruit."