Surplus Declining Amid Financial Crisis

The financial cushion that protects policyholders is declining. Towers Perrin has warned that the U.S. property/casualty industry’s reported surplus (a measure of claims-paying capacity or capital) could decline by as much as $80 billion or 15 percent by year-end if the stock market doesn’t recover from steep losses precipitated by the continuing financial crisis. Towers Perrin estimates that the industry’s reported statutory  surplus for the third quarter is projected to decline as much as $42 billion, or 8 percent, from the beginning of the year. Towers Perrin attributes the decline to a clash in equity and credit-related losses on insurer asset portfolios, catastrophe losses resulting from an active hurricane season and an anticipated spike in directors and officers liability (D&O) claims. I.I.I. president Dr. Robert Hartwig in  his commentary on the industry’s half-year 2008 results recently noted that U.S. policyholders’ surplus declined 2.5 percent to $505.0 billion as of June 30, 2008, from $517.9 billion at year-end 2007. A trend to monitor.

Leave a Reply

Your email address will not be published. Required fields are marked *