U.S. insurers post strong underwriting/income recovery for first half 2002

U.S. property and casualty insurers rose net taxed income for the first half of this year by 66% to US$4.6 billion compared with the US$2.8 billion reported for the same period a year ago, according to industry data collected by the Insurance Services Office (ISO) and the National Association of Independent Insurers (NAII). Insurers’ net income for the second quarter to end June came in at a negative US$647 million, also showing marked improvement over the US$2.9 billion net loss shown for the second quarter of 2001. Overall, the industry’s return on equity for the first half of this year clocked in at 3.3% compared with the 1.9% return made for the first half of 2001.
Although U.S. insurers made strong recovery gains in nearly all areas of the business for the latest six month reporting period, the industry’s surplus or net worth fell by 2.3% to US$283 billion at the end of June this year compared with the US$289.5 billion shown at the 2001 half year. The drop in surplus for the first half of this year is attributed to reduced investment income performance and a significant US$8.6 billion erosion in value of equity stocks held by companies.
Insurers reported a realized capital loss of US$564 million for the first six months of this year compared with a US$5.3 billion capital gain made for the same period in 2001. Net investment income for the first two quarters of this year fell by 5% year-on-year to US$17.8 billion (June 2001: US$18.7 billion), which resulted in the industry’s net investment gain for the first half of this year falling by nearly a third to US$17.3 billion from the US$24.1 billion reported for the first half of 2001. The decline in capital investment value, coupled with the drop in investment income growth, exceeded the industry’s growth in premium income and underwriting loss savings, thereby resulting in the overall decline in surplus, notes the ISO’s vice president of consulting and research, John Kollar.
The industry boosted net written premiums for the first six months of this year by 12% to US$182.4 billion compared with the US$162.8 billion reported a year ago. Net written premiums for the second quarter of this year rose by 14.2% year-on-year to US$92.6 billion (2-Q 2001: US$81 billion). "The 12% increase in written premiums in the first half of 2002 is the largest first-half increase in premiums since 1987," observes Kollar.
In contrast, claims costs for the first half of 2002 increased by 4% to US$134.3 billion compared with the US$129.3 billion reported for the first half of last year. This saw the industry’s net underwriting loss for the latest six months drop by 39% to US$11.9 billion against the US$19.4 billion reported for the first half of 2001. The improvement in underwriting largely came about due to a significant decline in catastrophe claims costs for the first half of this year, which amounted to about US$3 billion compared with the US$6.9 billion reported 12 months previously, says Kollar. "At US$3 billion, catastrophic losses through the six months [of this year] had fallen to their lowest level since the first half of 1997, when there were just US$1.8 billion in catastrophic losses."