Property/casualty insurers and their customers have been hammered by record-breaking catastrophe, or “cat,” losses the past few years, particularly in the first six months of 2011. Insurers sustained $27 billion in catastrophe-related losses in the first half of the year, a 127 percent increase from the $11.9 billion in losses that occurred in the first half of 2010, according to A.M. Best Co., an industry rating company. Losses may cause some insurers to offer less coverage for particular risks and in certain areas of the country. At the same time, companies that purchase property/casualty coverage could see premiums increase. Here’s a glimpse at how some Greater Des Moines insurers are weathering the storms.

Hurricane Irene’s costly broad swipe at the East Coast Aug. 27-28 was just the most recent blow to the property/casualty insurance industry, which has taken its lumps this year from one of the costliest successions of disasters in recent history.

“There are certainly opportunities for us to perform,” said Dick Clinard, associate vice president for personal lines claims for Nationwide Mutual Insurance Co. in Des Moines. “This year has been historic, not only in the number of claims but also the severity. This has been one of those years where we have certainly been stressed from that standpoint.”

Nationwide, which reported more than $1.5 billion in weather-related claims in the first half of this year, nevertheless generated net operating income of $398 million, driven in large part by the performance of its financial services products.

“The different types of products that we have certainly help us to service claims and remain profitable,” Clinard said. “Those products that aren’t weather-related certainly help us.”

Des Moines-based EMC Insurance Group Inc. reported record catastrophic losses of $50.5 million in the first six months of 2011.

“To say this has been a challenging quarter would be a huge understatement,” EMC’s chief financial officer, Mark Reese, said during an earnings call with investors last month. The company reported a second-quarter net loss of $12.5 million, compared with net income of $3.3 million for the second quarter of 2010.

During the past 10 years, EMC’s catastrophe losses have averaged about 8.5 percentage points of the company’s second-quarter loss and settlement expense ratio. In the second quarter of 2011, however, catastrophe losses – driven largely by the tornadoes that hit Tuscaloosa, Ala., Joplin, Mo., and Springfield, Mass. – accounted for 40.7 percentage points of EMC’s loss and settlement ratio of 132.9 percent in the second quarter. The loss and settlement ratio is a measure of a property/casualty company’s underwriting profitability. A figure below 100 indicates profitability, while one that’s above 100 signifies a loss.

Collectively, U.S. property/casualty insurers recorded $27 billion in losses in the first six months of 2011, more than twice the losses for the same period last year.

Net income of the publicly traded property/casualty insurance companies declined by 68 percent in the second quarter of this year, as the industry sustained pretax catastrophe losses of approximately $5.5 billion for the quarter that ended June 30, compared with about $2 billion in losses during the same period in 2010.

The industry’s combined ratio (the loss and settlement and expense ratios combined) paints a similar picture. The aggregate combined ratio for the 48 publicly traded property/casualty insurers deteriorated to 108.5 percent in the first half of this year. That figure was significantly worse than the 97.2 percent combined ratio for the group during the first half of 2010, according to a report released last week by Fitch Ratings.

“We expect that recent catastrophic loss activity will translate into higher rates for catastrophe-exposed property coverage,” according to Moody’s Corp. However, prices will increase gradually, unless there are significant hurricane losses or severe financial shocks, Moody’s said.

In just the past two months, State Farm Mutual Automobile Insurance Co. lost approximately $1.75 billion from disasters and Allstate Corp. lost $2.3 billion. Dana Ramundt, president and CEO of The Dana Co., a West Des Moines-based insurance brokerage firm, said such losses are likely to force insurers to draw down their reserves, or surpluses, to cover losses above what reinsurers will pay.

A hardening market?

“While we might not have a surplus issue now, I think that may be down the road six months to a year from now,” Ramundt said.

When that occurs, companies typically reduce their risk by issuing fewer new policies or dropping some types of coverage, he said.

“So they go through their portfolio, and those lines of risk that have proven not to be profitable they may get out of,” Ramundt said. “So essentially they dump business back into the market. When that happens, you have what is called a hard market. In a sense, the companies get the same premium for less exposure. But we’re not there yet.”

Some clients have been already begun shopping for better rates, Ramundt said.

However, insurers that are quick to raise premiums do so at their own peril, he noted.

“I’ve always lived by the rule that it’s the pioneers that take the arrows. The companies that are out in front on rate changes don’t do well, because all their good customers leave if they can. Many times, it’s good for them to stay where they’re at, because ultimately everyone’s going to catch up.”

Click here to view chart of costliest U.S. disasters.

To view the Ceres report, “Climate Risk Disclosure by Insurers, go to http://www.ceres.org/resources/reports/naic-climate-disclosure/view