PREVIEW-Some insurers seen posting lower quarterly earnings

Mon Apr 21, 2008 11:45pm IST

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By Lilla Zuill

April 21 (Reuters) - Some property-casualty insurers are expected to report lower quarterly earnings this week as soft market conditions take a bite out of underwriting profits and market turbulence dampens investment returns.

The rates insurers can charge for policies typically rise and fall based on loss activity, which has been benign over the past two years. This has led to lower premiums as companies try to win more business.

"We believe continued general softening of (insurance) rates should ... significantly reduce underwriting income," Citigroup analyst Joshua Shanker said in a research note.

Income from bond, stock and hedge fund investments generally helps boost results when underwriting returns flounder. However, Shanker said he saw a significant slowdown in net investment income growth in the first quarter, in part because of a poor performance from equity markets and lackluster returns from hedge fund and private equity firms.

Investors are also concerned that other insurers may disclose bad investments after American International Group (AIG.N: Quote, Profile, Research), the global market leader, recorded an $11 billion fourth-quarter write-down in the value of credit default swaps that had exposure to risky subprime mortgage bets.

Year-to-date, insurers have underperformed the broader stock market. The Standard & Poor's Insurance index has fallen 9.5 percent, compared with a roughly 4.5 percent decline in the S&P 500 .SPX.

This week, Allstate Corp (ALL.N: Quote, Profile, Research) and XL Capital (XL.N: Quote, Profile, Research) are among the insurers that analysts expect to post double-digit drops in first-quarter profit, according to Reuters Estimates, while Chubb (CB.N: Quote, Profile, Research) and Travelers Cos Inc (TRV.N: Quote, Profile, Research) are seen recording earnings that are flat or down slightly from a year earlier.