The financial cushion that protects policyholders is declining. Towers Perrin has warned that the U.S. property/casualty industryÃ¢â‚¬â„¢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 doesnÃ¢â‚¬â„¢t recover from steep losses precipitated by the continuing financial crisis. Towers Perrin estimates that the industryÃ¢â‚¬â„¢s reported statutoryÃ‚ 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 inÃ‚ 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.