First-Quarter Industry Combined Ratio Improved

By Daniel Hays

NU Online News Service, June 24, 12:52 p.m. EDT? The property-casualty insurance industry's loss and expense ratio picture improved by 2.6 points in the first quarter, two separate sources reported yesterday.

A joint report from Insurance Services Office, Inc. and National Association of Independent Insurers and a separate study by A.M. Best Company both made that finding for the combined ratio measuring loss and underwriting expenses against each dollar of premium.

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

ISO, based in Jersey City, N.J. and NAII in Des Plaines, Ill. said the industry's first quarter net income was up 20.6 percent to $6.4 million from $5.3 billion during the comparable period in 2002. Better underwriting results and investment gains were the impetus, they said.

The figures, set the stage "for what could become the industry's first reasonably profitable performance since 1997," said Robert P. Hartwig, senior vice president and chief economist with the New York-based Insurance Information Institute in New York, in a commentary issued with the ISO/NAII findings.

Mr. Hartwig cautioned, however, that one quarter is not a trend and that "many factors threaten to cut the profit party short." He mentioned a weak investment environment, sluggish exposure growth amid increasing capacity and reserve overhangs.

According to the ISO/NAII figures, the industry's net loss on underwriting 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 7.6 percent, to $10.1 billion in first-quarter 2003 from $9.4 billion in first quarter 2002. While net realized capital gains rose $0.7 billion to $1.1 billion in the first quarter of 2003, net investment income dropped 0.3 percent to $9 billion.

Best, in discussing its compilation of industry results, noted that the improved underwriting performance was reported despite a considerable increase in catastrophe activity, attributed primarily to severe winter storms and windstorms, which added 1.5 points to the combined ratio.

Insurers sustained $1.5 billion in catastrophe losses in the quarter compared with $0.6 billion in 2002, according to the ISO/NAII report.

Additionally Best cited the abnormal impact of the Hartford Insurance Group's action to strengthen reserves for asbestos claims by $2.6 billion. Hartford's charge and ordinary asbestos and environmental incurred losses added an estimated 3.3 points to the industry combined ratio, compared with 0.7 points in 2002, the report by analyst Karen Horvath said.

"These results clearly show that insurers are focusing on the fundamentals of the property-casualty business-- pricing, underwriting and loss adjudication--to fuel their continuing recovery from the soft market of the 1990's and the tragic events of Sept. 11, 2001," said John J. Kollar, ISO vice president for consulting and research.

Don Griffin, NAII assistant vice president for business and personal lines, said, given the current investment environment, "insurers have little choice but to focus on the fundamentals of the underwriting business." With the average yield on 10-year Treasury notes falling to its lowest monthly level since August 1958, "investment income is apt to remain weak for some time to come," he noted.

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First-Quarter Industry Combined Ratio Improved

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