In light of a drop in income and overall profitability for the first half of the year, the property-casualty industry remains “profitable,” according to a national trade organization.

New statistics from ISO and the Property Casualty Insurers Association of America indicate that private U.S. insurers saw their net income after taxes fall 59.3% to $5.8 billion in the first half of 2009, down from $14.1 billion in the first half of 2008. Insurer’s overall profitability, as measured by their annualized rate of return on average policyholders’ surplus, dropped to 2.5% for the first half of this year, from 5.5% in the first half of last year.

Investment gains were found by the groups to drive the decline in net income, falling 50.2% to $12.4 billion in the first half of the year, down from $24.9 billion in the first half of 2008.

For the second quarter of 2009, the property-casualty industry saw a net income after taxes of $7.1 billion, an increase of 28.1% from the $5.5 billion from the second quarter of 2008, and insurers’ annualized rate of return on average surplus increased 2% to 6.3% in the second quarter 2009 from last year at the same time.

David Sampson

David Sampson, CEO for PCI, said while profits and profitability “tumbled” for the first half of 2009, “the insurance industry remained profitable and policyholders’ surplus increased.”

“Property casualty insurers continue to be healthy and competitive despite an extraordinarily difficult operating environment complicated by the worst recession in decades and the lingering effects of an unprecedented financial crisis that brought down many once iconic banks and Wall Street institutions,” Sampson said in a statement.

He noted that combining insurers’ $463 billion in policyholders’ surplus at June 30 with their $553.4 billion in loss and loss adjustment expense reserves and their $202.5 billion in unearned premium reserves, the companies had just over $1.2 trillion in funds available to cover losses and other contingencies.

“This stability is important to the industry’s ability to fulfill its promise to consumers,” he said.

Partially offsetting the deterioration in insurers’ investment results, net losses on underwriting fell $3.4 billion to $2.2 billion in first-half 2009 from $5.6 billion in first-half 2008, ISO and PCI noted. The combined ratio improved to 100.9% in the first half of this year from 102% in the first half of last year.

“While the 100.9%combined ratio for first-half 2009 compares favorably with the 103.8% average combined ratio for all first halves since 1986, today’s low interest rates and investment yields mean insurers must now post significantly better underwriting results just to be as profitable as they once were,” said Sampson. “For example, in first-half 1987, insurers achieved a 15% annualized overall rate of return with a combined ratio of 104.1%. In first-half 2009, insurers’ annualized rate of return was just 2.5%, even though the combined ratio was 3.3 percentage points better.”