Reports: P-Cs Post A Better First Quarter

The property-casualty insurance industrys loss and expense ratiopicture improved by 2.6 points in the first quarter, two separateindustry sources said in reports.

A joint report from Insurance ServicesOffice Inc. and the National Association of Independent Insurers,and a separate study by A.M. Best Company both made that findingfor the combined ratio measuring loss and underwriting expensesagainst each dollar of premium.

ISO and NAII said the first-quarter ratio improved to 99.5 andBest said it went to 99.7 for the strongest underwritingperformance in five years.

ISO, based in Jersey City, N.J., and NAII in Des Plaines, Ill.,said the industrys first-quarter net income was up 20.6 percent to$6.4 million from $5.3 billion during the comparable period in2002. Better underwriting results and investment gains were theimpetus, they said.

The figures set the stage “for what could become the industrysfirst reasonably profitable performance since 1997,” said Robert P.Hartwig, senior vice president and chief economist with the NewYork-based Insurance Information Institute in New York, in acommentary issued with the ISO/NAII findings.

Mr. Hartwig cautioned, however, that one quarter is not a trendand that “many factors threaten to cut the profit party short.” Hementioned a weak investment environment, sluggish exposure growthamid increasing capacity and reserve overhangs.

According to the ISO/NAII figures, the industrys net loss onunderwriting was down 59.9 percent to $1.5 billion compared with$3.6 billion in first-quarter 2002.

Industry pre-tax net investment gain rose $0.7 billion, or 7.6percent, to $10.1 billion in first-quarter 2003 from $9.4 billionin first quarter 2002. While net realized capital gains rose $0.7billion to $1.1 billion in the first quarter of 2003, netinvestment income dropped 0.3 percent to $9 billion.

Best, in discussing its compilation of industry results, notedthat the improved underwriting performance was reported despite aconsiderable increase in catastrophe activity, attributed primarilyto severe winter storms and windstorms, which added 1.5 points tothe combined ratio.

Insurers sustained $1.5 billion in catastrophe losses in thequarter compared with $0.6 billion in 2002, according to theISO/NAII report.

Additionally, Best cited the abnormal impact of the HartfordInsurance Groups action to strengthen reserves for asbestos claimsby $2.6 billion. Hartfords charge and ordinary asbestos andenvironmental incurred losses added an estimated 3.3 points to theindustry combined ratio, compared with 0.7 points in 2002, thereport by analyst Karen Horvath said.

“These results clearly show that insurers are focusing on thefundamentals of the property-casualty business–pricing,underwriting and loss adjudication–to fuel their continuingrecovery from the soft market of the 1990s and the tragic events ofSept. 11, 2001,” said John J. Kollar, ISO vice president forconsulting and research.

Don Griffin, NAII assistant vice president for business andpersonal lines, said given the current investment environment,“insurers have little choice but to focus on the fundamentals ofthe underwriting business.” With the average yield on 10-yearTreasury notes falling to its lowest monthly level since August1958, “investment income is apt to remain weak for some time tocome,” he noted.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, June 30, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.