Q1 2002 net income drops for U.S. p&c industry

Despite widespread rate hardening and improved underwriting results, the U.S. p&c industry saw its net income fall 7.3% for the first quarter 2002 largely as a result of declining investment returns, says the Insurance Services Office (ISO).
Net income was $5.1 billion (all figures are in U.S. dollars) for the first quarter of this year, versus $5.5 billion for the same period last year, but the overall underwriting loss dropped 38% during the same time frame. Net underwriting loss was $3.8 billion this year, versus $6.1 billion in 2001.
Investment results plagued the industry, with pre-tax net investment gains falling $3.3 billion, or 26.4%, to $9.3 billion in the first quarter of this year from $12.6 billion for the same period this year. Net investment income fell to $8.9 billion from $9.5 billion, with realized capital gains down 88.8% to $0.4 billion from $3.2 billion.
“The deterioration in investment results compounds the difficulties facing insurers still reeling from massive losses inflicted by the terrorist attack on September 11 last year,” says John Kollar, vice president for consulting and research for the ISO. “Low interest rates and the weakness in stock markets year to date suggest that investment results may continue to deteriorate for some time to come.”
However, given that 2001 saw U.S. insurers reporting their first ever annual net loss, first quarter 2002 represents a turnaround on the underwriting side. During this period, net written premiums were up to $90.3 billion, against $81.9 billion a year prior. Earned premiums were up 8.1% to $82.9 billion for the first quarter of this year, versus $76.7 billion during the same period last year. This outpaces a 4.8% increase in loss and loss adjustment expenses to $63.7 billion from $60.8 billion. First quarter 2001, by comparison, saw loss and loss adjustment expenses increase 9.3%.
Pre-tax operating income was up $1 billion, to $4.9 billion this quarter from $3.9 billion last year. Surplus rose 1.9% to $295.1 billion for the most recent period, compared to $289.6 billion at the end of 2001. And the industry’s overall combined ratio improved for the first quarter of 2002 to 102.3% from 106.1% in first quarter 2001.
“While the improvement in underwriting results is certainly welcome news, there are some dark clouds on the horizon. Major wildfires continue to threaten some communities in the West, and the hurricane season has just started,” says Kollar. He adds that insurers stand to face additional exposures from the September 11, 2001 terrorist attacks, given that losses for U.S. insurers are estimated at net $25 million, but by yearend 2001, only $10 billion of this was on the books.