U.S. insurers post US$9 billion underwriting profit in first-half 2004

U.S. insurers posted a whopping US$9 billion underwriting profit in the first six months of 2004, compared to a loss of US$2.7 billion during the first half of 2003, according to data compiled by A.M. Best.
In its report on the first-half 2004 results of U.S. p&c insurers, the rating agency finds net income atUS$23.6 billion, up from US$15.5 billion a year previous.
Much of this gain comes on the underwriting side, with the industry pulling in a combined ratio of 94.5% for the first half of this year, down from 99.7% in first-half 2003, and 105.1% in the first half of 2002.
The turning of the market cycle was clearly evident in mid-year results, A.M. Best notes. Net written premiums were up just 4.6% in the first half of this year, to US$216.8 billion from US$207.3 billion a year ago this compares with premium growth of 12.9% between first-half 2002 and 2003. And net earned premiums grew just 6.7% to US$207.0 billion from US$193.9 billion during the same comparative period.
The loss ratio dropped significantly over the same period, to 69.5% in the first six months of 2004 from 74.9% the year prior. And investment result were also stronger, with net investment income coming in at US$19.4 billion for the first six months of this year, up from US$18.9 billion the year prior. Realized capital gains did drop by 4.5% over the same comparative period, however, down to US$4.3 billion from US$4.5 billion.
The biggest change was impressive growth in industry surplus achieved in the first half of 2004. Surplus as of June 30, 2004 stands at US$379.2 billion, up from US$318.3 billion at the end of June, 2003, and a 6.6% increase over yearend 2003.
However, the rating agency cautions against celebrating these results too quickly – the results for mid-2004 do not take into account the devastating impact of Hurricanes Charley, Frances and Ivan. Thus far, 2004 had proven to be a relatively low cat year, with just US$2.69 billion in insured losses accounted for by the U.S. Insurance Services Office (ISO). The combined impact of the three third-quarter hurricanes could well reach close to US$20 billion.
Also, the second half of the year should see insurers taking some charges, albeit less than in 2002 or 2003, to shore up reserves, specifically for asbestos and environmental claims. “Based on A.M. Best’s preliminary findings, the industry’s A&E reserves are under-funded by an estimated US$39 billion, and it is likely that A&E charges will impact results during the second half of 2004. Despite considerable increases in A&E reserves during the past three years, several of the 30 most exposed companies in the industry have not completed ground-up studies of their asbestos and environmental exposures.”