Best: P-C Insurers Show Improved Result In '03
NU Online News Service, Sept. 15, 3:55 p.m. EDT?The U.S. property-casualty industry reported "strong premium growth and considerably improved underwriting results" in the first half of the year, but the staying power for these improvements remains in question, an A.M. Best study finds.
Best's report on the p-c industry's half-year results this week warned that even with strong results, insurers are still toiling their way out of "a decade of soft pricing, accelerating loss-cost trends and a multiple-year capital-market quandary."
The Oldwick, N.J.-based ratings agency observed that for 2003, main drivers behind improving p-c results have been annual pricing hikes and enhanced underwriting fundamentals in each of the industry's main sectors: reinsurance, commercial lines and personal lines.
And according to the A.M. Best data, net written premiums for the first half of the year rose some 12.6 percent over the comparable period in 2002, while the combined ratio dropped by around 4.4 points, to 99.3 from 103.7 last year. "This is the first time in the past five years that the industry reported a combined ratio below 100 at midyear," the rating agency commented.
Best added that these numbers are "even more significant" in light of continuing adverse loss-reserve developments–attributed primarily to asbestos and environmental liabilities and a significant increase in catastrophe losses.
Also noted in the report is a sharp decline in underwriting losses, from $10.2 billion recorded for the 2002 first half to $2.1 billion during the first half of 2003, thanks to rate hikes, rigid policy terms and coverage restrictions applied in the past several renewal periods.
Best also commented that gains from the hard market "began to flow to the bottom line" during the first six months of this year, as net income rose 159 percent to $18.6 billion in the 2003 first half, up from $7.2 billion during the comparable period last year. "The industry reported a much-needed 11.1 percent increase in surplus for the first half of 2003," Best said.
Additionally, the p-c industry has also enjoyed healthier investment results, as the net investment income jumped about seven percent to reach $20.7 billion for the first half of the year, up from $19.4 billion during the first six months of 2002.
As for the high-priced hard market, the rating agency said withdrawals in certain business lines–combined with limited capacity, especially in some primary and excess casualty markets–are helping to maintain pricing momentum.
Still, "the velocity of rate increases tempered, and it is apparent that property rates largely have reached the peak of the pricing cycle," Best observed.
Looking into the rest of 2003, the rating agency forecast the industry will generate favorable operating results and add to surplus for the first time in three years. "However," the report cautioned, "as was the case in 2002, A.M. Best believes that the benefits of the hard market will be diluted for the full-year 2003 by A&E charges, adverse development on core loss reserves–particularly in the commercial-lines segment–and potential investment challenges."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.