U.S. insurers benefit from 1-Q underwriting recovery

U.S. property and casualty insurers increased net taxed income for the first quarter of this year by more than 20% to US$6.4 billion compared with the US$5.3 billion reported for the same period a year ago, according to data collected by the Insurance Services Office Inc. (ISO) and the National Association of Independent Insurers (NAII). The significant year-on-year profit rise for the latest quarter resulted primarily from pricing adjustments implemented last year which saw earned premiums outstrip the rise in claims costs with the industry’s underwriting loss falling by a dramatic 60% to US$1.5 billion from the US$3.6 billion incurred for the first quarter of 2002.
Insurers’ net earned premiums grew year-on-year by 13.6% to US$93.6 billion for the first quarter of this year from the US$82.4 billion reported for the same period in 2002. Net written premiums rose by 12.7% for the latest reporting period to US$101.3 billion from last year’s first quarter tally of US$90 billion.
In contrast, the industry’s claims costs for the first quarter of this year increased by 10.7% to US$70 billion compared with the US$63.2 billion shown for the same period in 2002. The rise in claims costs include a hefty US$1.5 billion in catastrophe related losses which for the latest reporting period show a marked jump of 2.5 times the cat cost of US$600 million reported for the first quarter of 2002. The improvement in the underwriting loss for the latest quarter result saw the combined ratio drop to 99.5% from last year’s 102.2% ratio. The Industry’s combined ratio would have clocked in at about 97% for the latest reporting period but for a large reserve adjustment made by one insurer during the period, observes John Kollar, vice president of consulting and research at the ISO.
Insurers were able to boost their total pre-tax investment gain (capital gains and investment income) by 7.6% year-on-year to just over US$10 billion for the first quarter of this year (2002 1-Q: US$9.3 billion). However, this modest recovery in investment performance for the quarter was driven by US$1.1 billion in realized capital gains while investment income deteriorated marginally to US$8.9 billion from the US$9 billion reported a year ago. This latest decline in investment income performance follows a 2.8% year-on-year decrease for the 2002 financial year and a further 7.3% erosion shown for 2001, notes Don Griffin, assistant vice president at NAII. “With the average on 10-year Treasury notes falling to 3.57% in May – its lowest monthly average since August 1958 – investment income is apt to remain weak for some time to come.”