U.S. insurers produce first underwriting profit since 1978

2004 marks the first underwriting profit produced by U.S. p&c insurers in more than 25 years, a feat which boosted net income and surplus to record highs, according to date released by the Insurance Services Office (ISO) and the Property Casualty Insurers Association of America (PCI).
2004 saw insurers bring in net income of US$38.7 billion, a 29% increase over the income of US$30 billion produced in 2003. Surplus rose to a record US$393.5 billion at yearend, up 13.4% over the US$347 billion mark where it stood at the end of 2003.
Underwriting was the key, with insurers pulling in net underwriting income of US$5.0 billion last year, compared to a net loss of US$4.9 billion in 2003. The industry’s combined ratio for 2004 dropped to 98.1% from 100.1% in 2003.
Net written premiums grew slightly in 2004 to reach US$423.3 billion (2003: US$404.4 billion), while earned premiums jumped to US$412.6 billion last year (2003: US$386.3 billion).
Loss and loss adjustment expenses also rose, reaching US$299.5 billion in 2004 (2003: US$288.7 billion).
And investment income grew slightly to US$39.6 billion last year, compared to US$38.7 billion the year prior. And with a jump in net realized capital gains in 2004 to US$9.3 billion (2003: US$6.6 billion), the industry’s net investment gain last year hit US$48.9 billion, up from US$45.3 billion in 2003.
At the same time, the industry boosted its reserves in 2004 to US$460.4 billion from US$424.0 billion at the end of 2003.
“Prior to 2004, insurers suffered a net loss on underwriting every year since 1978,” notes John Kollar, ISO vice president for consulting and research. “Insurers’ net gains on underwriting last year are all the more remarkable in view of the five catastrophic hurricanes that struck in 2004,” he adds.
Hurricanes and other catastrophes resulted in US$27.5 billion in claims last year of which U.S. insurers will be responsible for about US$15.5 billion, notes Gregory Heidrich, senior vie president for policy development and research at PCI. “If catastrophe losses had stayed at the level they were in 2003 (about USUS$12.5 billion), insurers’ combined ratio would have improved all the way to 97.3% in 2004,” he explains.