Loss costs likely to outpace premium growth in 2005: A.M. Best

Despite the strong results posted by the U.S. p&c insurance industry in 2004, this year will likely see loss costs significantly outpace premium growth, according to a special report by A.M. Best.
The rating agency says the US$6.3 billion underwriting profit achieved by insurers their first since 1978 is the result of rate increases leading up to the pricing peak in 2003 earning through. However, the “paltry” 4.7% premium growth in 2004 (compared to 14.7% in 2002 and 9.5% in 2003) will likely be followed by even weaker growth in 2005 as a result of increasing price competition. The rater predicts premium growth of just 1.2% in 2005. “Accordingly, growth in loss costs is expected to rapidly outpace stagnating rates, and underwriting discipline will be the key to maintaining underwriting profit,” the
report notes.
This competition has been most obvious in the reinsurance and primary commercial lines, while personal lines have generally remained stable in terms of pricing.
Nonetheless, 2005 results will likely be strong overall, and the industry should post a combined ratio in the same range as 2004, which was 97.9%. “the generally adequate pricing, prudent underwriting practices and operational efficiencies inherent in the unearned premium reserve at year-end 2004 will continue to benefit underwriting results in 2005, as this premium is earned and losses incurred are held at bay by stringent terms and conditions.”