Profits Rising For P&C Insurers
NU Online News Service, Sept. 23, 2:50 p.m. EST?Property and casualty insurers in the United States are rapidly making up for losses from last year, a survey by a financial safety ratings firm discovered.
According to the survey by Weiss Ratings Inc., based in Palm Beach Gardens, Fla., more than 2,200 P&C insurers posted profits of $5.5 billion for the first quarter of 2002. Weiss said this represents a 4.9 percent increase, or $260 million, over the same period last year.
Melissa Gannon, vice president of Weiss, attributed the positive showing to "years of strong earnings and frequent rate increases," both of which have enabled the insurance industry to absorb losses from catastrophes quickly.
At the same time, P&C insurers' investment income was down. Weiss said that market volatility in the first quarter of this year contributed to a decline of $2.4 billion, or 85.7 percent, in net realized capital gains, from $2.8 billion in 2001 to $400 million this year.
Bleak market performance also led to a $145 million decline in investment income for the industry, as compared with last year. But Weiss reported that investment income was sufficiently high to offset $3.3 billion in underwriting losses.
Industry capital rose $11.2 billion, or 3 percent, to $378.5 billion at March 31, 2002, from $367.3 billion at March 31, 2001. According to Weiss, a contributing factor was the increase in surplus notes. These subordinated debt instruments, which are included in statutory capital, rose to $8.1 billion from $6.1 billion during the same period.
Weiss said that some of the insurers posting the largest year-over-year increase in net income included State Farm Mutual Automobile Insurance Co., Metropolitan Property & Casualty Insurance Co., Liberty Mutual Insurance Co., United Services Automobile Association, and St. Paul Fire & Marine Insurance Co.
Similarly, A.M. Best, the Oldwick, N.J. rating agency, has found that the P&C industry reported "solid growth" in premium volume (a 10.9 percent increase) and "much improved" underwriting results (a nearly 40 percent reduction in underwriting losses) for the first six months of 2002 over the comparable period of 2001.
A.M. Best attributed these results to "robust" price increases in reinsurance, commercial lines and personal lines as well as to "lower-than-usual" losses from catastrophic events. The combined ratio improved by about six points to 105.1 in 2002 from 111.2 in 2001, A.M. Best reported.
A.M. Best indicated that expected strong premium growth through the rest of the year and likely even 2003 will help stabilize the financial condition of the P&C insurance industry. But the agency cautioned that the "legacy of poor underwriting discipline, continued adverse loss-reserve development and the general malaise in the capital markets" are already limiting earnings improvement.
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