March 31, 2005 by Canadian Underwriter
Despite strong financial results and an overall growth in surplus for U.S. property & casualty insurers in 2004, the rate of growth has dropped off the pace set in 2003, notes a new report by Standard & Poor’s.
The rater says surplus grew about 15% in 2004 by early estimates, compared to 20% growth in 2003. This is despite stronger earnings in 2004, and may be the result of such factors as weak investment returns, rising shareholder dividends and reduced contributions by global parents to U.S. company surplus.
S&P says insurers are set to post a combined ratio of 98% for 2004, the first time the ratio will drop below 100% in more than a decade. However, reduced net unrealized capital gains and lower net investment income earned are a drag on surplus growth. At the same time, shareholders’ dividends have increase relative to earned premiums, although companies continue to show restraint compared to expectations in this regard.
Companies are seeing reduced surplus contributions by parent companies as well. “That paid-in surplus contributions are also lower in 2004 than 2003 is perhaps a commentary on the cautionary view of insurance companies’ parents as well as property and liability pricing continuing to soften,” the report notes.