U.S. Reinsurers' Combined Ratio Improves 20.1 Points

By Michael Ha

NU Online News Service, March 16, 3:30 p.m.EST?U.S. property-casualty reinsurers improved theircombined ratio to 101.2 percent in 2003, down from 121.3 percentreported by a similar group of companies during 2002, according toa survey by the Reinsurance Association of America.[@@]

The overall net income for reinsurers jumped to $3.08 billion in2003 compared with $628.39 million reported by a similar group in2002.

Reinsurers' policyholder surplus also rose, reaching $55.92billion compared with $42.08 billion posted by a comparable groupin 2002, according to RAA survey data, which was based on statutoryunderwriting results of 29 U.S. property and casualtyreinsurers.

Joseph Sieverling, vice president at the Washington, D.C.-basedReinsurance Association of America, said the aggregate combinedratio for 2003 reflects a drastically improved loss ratio of 74percent, along with a 27.2 percent expense ratio.

"Both the loss ratio and the combined ratio improveddramatically, while expense ratio is essentially flat," Mr.Sieverling commented. "The whole decrease in the combined ratio isdue to a better loss experience?and that is clearly in line witheveryone's expectations." (In 2002, a similar group of reinsurersreported 93.7 percent loss ratio and 27.6 percent expenseratio.)

The aggregate underwriting loss for reinsurers narrowedconsiderably, from a loss of $6.44 billion in 2002 to a loss of$563.51 million for 2003.

Mr. Sieverling explained that reinsurers had benefited from afavorable rate environment and that reinsurers had also become moreselective in the risks that they assume as well as having moreterms and conditions that limit reinsurer losses.

"Terms and conditions of the contracts have tightenedsubstantially, and the rates have gone up?both of these factorshave really contributed to much lower loss ratios in 2003," Mr.Sieverling said.

But despite a 20.1 point improvement in the aggregate combinedratio, there were also some disappointing trends. The RAA reportshowed, for example, that reinsurers posted lackluster growth innet premiums written during 2003.

In the RAA survey, the 29 U.S. reinsurers reported $30.63billion in net premiums written for 2003?marginally higher than the$29.5 billion posted one year ago. "It increased by about a billiondollars in 2003, which is a relatively small increase compared towhat we saw from 2001 to 2002, which was about a $5 billionincrease," Mr. Sieverling noted. "I think you could say that rateincreases have really slowed or probably came to a stop or, in manylines of business, have reversed."

The RAA survey also showed that the investment income hasdropped substantially during 2003, down more than 10 percent to $5.62 billion in 2003 from $6.23 billion reported for 2002.