If there was any hope that insurance companies would be spared the pain and drama that has overwhelmed the banking industry, forget about it.Industry news from the past few days makes it clear that there are plenty of reasons to be concerned about the financial prospects for the insurance business. It's bad enough (although it didn't come as a surprise) that AIG has announced a net loss of $61.7 billion -- reportedly the largest corporate loss in U.S. History. CNBC's David Faber offered a thoughtful assessment of the news:
But there also were dismal reports from industry stalwart State Farm, which has announced that its net worth dropped 16 percent ($10.4 billion) in 2008 to $53.5 billion. Although $6.3 billion in catastrophe losses for the year didn't help, according to a February 27 press release the company attributes most of the drop to "the $9.2 billion decline in the value of the property-casualty (P-C) companies' unaffiliated stock portfolio (net of deferred tax)."
And then there's Warren Buffett's Berkshire Hathaway, which reported that 2008 was its worst year on record, losing 9.6 percent in book value per share. These results have more to do with (unsuccessful) investments in banking and energy derivatives than any particular weaknesses among Berkshire Hathaway's insurance holdings. Still, when Warren Buffett has a bad year, it's hard to feel hopeful about any segment of the economy.
I know it's a cliché, but I must quote Bette Davis' Margo Channing character in the classic 1950 film "All About Eve" -- "Fasten your seatbelts, it's going to be a bumpy night."
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio