April 12, 2004 by Canadian Underwriter
U.S. insurers will post net income of US$30.8 billion for 2003, says A.M. Best, and customers can expect to feel rate relief in the coming year.
Last year, net income rose more than 235% to top US$30 billion, following the US$9.2 billion in income reported in 2002. Overall, the industry posted return on equity of 9.5%.
Net written premiums were up 9% to US$412.8 billion (2002: US$378.9 billion), and the industry managed to cut its underwriting loss by 85%, producing a loss of US$4.8 billion in 2003, versus US$31.9 billion the year prior. The loss ratio dropped to 62.0% last year, against 68.9% the year before, while the combined ratio fell a dramatic 7.3% to 100.1%, down from 107.4% in 2002. Excluding catastrophes and asbestos/environmental (A/E) losses, 2003 would have produced a combined ratio of 95.1%.
Net investment income dropped to US$39.8 billion in 2003 (2002: US$40.1 billion), although realized gains were up substantially to US$6.2 billion (2002: US$2.8 billion).
To end the year, insurer surplus stood at US$355.8 billion, a 22% jump over the US$291.1 surplus reported at the end of 2002.
The good results in 2003 came as the industry began to realize the full benefits from the hard market in the form of earnings, and A.M. Best expects that 2004 results will continue to reap the rewards as 2003 price increases are fully earned,” the rater says. “However, the peak of the cycle is already in the rearview mirror, with rumblings of price competition and questions regarding the sustainability of improved market conditions looming as underwriting results in many sectors continue to languish.”
The personal lines sector fared the best, posting a combined ratio of 98.3%, despite heavy catastrophe losses totaling US$2.64 billion in the fourth quarter of 2003. Commercial and reinsurance segments improved, but still could not produce underwriting profits, posting combined ratios of 101.8% and 100.4%, respectively.
Adverse loss reserve development continues to haunt the industry, with A.M. Best reporting US$13.9 billion in adverse development last year. This was split almost evenly between core reserve charges and A/E liabilities.
“A.M. Best believes that accident years 2002 and 2003 will deteriorate, albeit to a lesser degree than 2001 and prior have,” the rating agency notes. “It is important to recognize that the reality of 2002 and 2003 results will not be known for some time, as this business especially for commercial lines and reinsurance carriers is immature and far from ultimate development.”
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