A hostile investment environment and shrinking economy had a significant impact on the financial and underwriting performance of the property/casualty (P/C) insurance industry in the first quarter of 2009. The industry’s annualized statutory rate of return on average surplus fell to negative 1.2 percent during the first quarter of 2009, down from positive 6.6 percent in the first quarter of 2008. The industry results were released by ISO and the Property Casualty Insurers Association of America. In his commentary on the results, I.I.I. president Dr. Robert Hartwig notes that the quarter’s sharp decline in profitability and shrinking capacity was primarily due to poor investment market performance, persistent soft market conditions, modest catastrophe losses, and a spillover of the housing and credit bubble collapse into the mortgage and financial guarantee segments of the P/C industry. However, excluding this segment and normalizing catastrophe losses reveals a much more modest decline in profitability. Here are some of the key Q1 2009 stats: net income after taxes fell $9.8 billion to negative $1.3 billion, from positive $8.5 billion in the first quarter of 2008; net written premiums fell 3.6 percent to $106.4 billion, breaking the previous record decline of 0.8 percent in 2008; industry policyholders’ surplus (the industry’s primary measure of capacity) fell by $19 billion or 4.2 percent to $437.1 billion from $456.1 billion at year-end 2008; net investment income fell by 8.7 percent to $11.7 billion; catastrophe losses (the one bright spot) totaled $2.9 billion during the first quarter, down 17.1 percent from $3.5 billion in the first quarter of 2008.