January 1, 2004 by Canadian Underwriter
U.S. property and casualty insurers saw their net income jump an impressive320.6% to US$21.1 billion for the nine months ending September 30, 2003,versus the US$5 billion posted for the same period a year earlier. Equallywelcome was a return on equity of 9.3% for the first nine months of 2003, upfrom 1.0% the year earlier, according to results released by the Insurance Services Office (ISO) and National Association of Independent Insurers(NAII).
Much of the growth comes on the back of continued underwriting progress. Net written premiums were up 10.1% to US$308.6 billion, with earned premiums up to US$288.7 billion from the US$258.6 billion posted a year before. Nonetheless, this does represent a drop from the 14.3% premium growth postedin 2002, and for the third quarter of 2003 specifically, premium growth slowed to just over 9%.
The industry’s underwriting discipline has seen its combined ratio drop to 100.3% for the first nine months of 2003, from 105.0% a year earlier. The industry also posted an underwriting loss of just US$5.7 billion for the first three quarters of 2003, with projected underwriting losses for 2003 yearend at US$12 billion, a 77% decline since 2001’s record US$52 billion underwriting loss, according to Robert Hartwig, chief economist of the Insurance Information Institute. And this is despite the higher-than-average catastrophe losses posted in 2003 on the back of the California wildfires and Hurricane Isabel.
Investment income was up 3.2% even in the face of low interest rates, and realized investment gains, which were negative US$1.3 billion in the first nine months of 2002, were US$5.9 billion for the same period in 2003.
Overall, policyholder surplus grew by 12.1% to reach US$319.9 billion, up from US$285.4 billion at the end of 2002.
“To insurers’ credit, much of the progress to date reflects increased attention to the fundamentals of our business – solid underwriting, cost-based pricing and careful claim settlement,” says Don Griffin, NAII’s assistant vice president for business and personal lines. “Now the $64,000 question is, how long will insurers maintain their focus on the fundamentals?”
“As good as 2003’s results are through the first nine months, they’re still not good enough,” comments Hartwig. He notes that despite strong underwriting performance, the industry is nowhere near posting the 13-15% returns posted by other Fortune 500 companies.