ISO/NAII: P-C Income Surged For ?03 First Three Quarters

NU Online News Service, Dec. 22, 3:43 p.m. EST?There is growing concern that slowing premium growth couldundermine gains made during the first three quarters of 2003,according to a joint report released by the Insurance ServicesOffice Inc. and the National Association of IndependentInsurers.[@@]

The latest industry figures from Jersey City, N.J.-based ISO andNAII, headquartered in Des Plaines, Ill., shows that the U.S.property-casualty industry enjoyed a robust recovery during thefirst three quarters of 2003, but now there is a growing concernthat slowing premium growth could undermine further progress in2004.

The p-c industry's after-tax net income, according to the twogroups, came in at $21.1 billion for 2003's first nine months,representing a 320 percent improvement from the $5 billion in netprofit reported over the same period in 2002.

Both ISO and NAII said the industry's underwriting andinvestment results have made progress. The groups pointed out thatthe overall net losses on underwriting fell 69 percent to $5.7billion for 2003's first nine months, compared to the correspondingperiod during 2002.

"Underwriting results improved as premium growth outpaced growthin loss and loss-adjustment expenses, other underwriting expenses,and dividends to policyholders," according to the ISO/NAIIreport.

The industry's net investment income, mostly dividends fromstocks and interest on bonds, also showed better results, reaching$27.7 billion for the 2003 nine-month period, a more than 3 percentjump from the year before.

The industry's surplus also made gains, up 12 percent to $319.9billion at the end of 2003 third quarter, compared to the year-end2002 period when the industry had $285.4 billion in surplus.

John Kollar, vice president for consulting and research at ISO,observed that the industry's annualized rate-of-return on averagesurplus rose to more than 9 percent during the 2003 nine-monthperiod, up from more than 2 percent during the corresponding periodin 2002 and a dismal, negative 1.1 percent reported in 2001.

Still, Mr. Kollar cautioned that while the industry's progressis encouraging, "only time will tell" whether insurers can everregain profitability like the more than 13 percent annualizedrate-of-return for nine-months 1997 or the 15 percentrate-of-return for full-year 1986.

Mr. Kollar warned that the current hard market is "alreadyshowing its age." He pointed out, for instance, that the industry'snet written premiums reached $308.6 billion for the 2003 nine-monthperiod, up only $28.3 billion from the corresponding period in2002. While this still represents a strong 10 percent improvementfrom the year-ago period, it is nonetheless lower than the 14percent gain in net written premiums recorded during nine-months2002.

What's more, Mr. Kollar added, ISO's data shows that rate hikeson renewals of commercial policies are losing momentum.

"Rate changes on renewals first turned positive in July 1999 andaccelerated for three years, peaking at 12.9 percent versusyear-ago levels in July 2002," he noted.

But since then, rate increases on renewals have been slowing,falling to just less than 8 percent last June.

"Recent market surveys suggest that rate increases havecontinued to moderate, with rates for some coverages and marketsegments now flat to down," he observed. "All else being equal,insurers will have an increasingly difficult time maintaininggrowth in net income as rate increases wane."

Don Griffin, assistant vice president for business and personallines at NAII, also said, "Now, the 64-thousand-dollar question is,how long will insurers maintain their focus on thefundamentals?"

Each progressing improvement in insurers' results makes it thatmuch harder to "resist the temptation to ignore the fundamentalsand go for market share," he noted.