Insurer Results Still Lag Behind Some Soft Market Years

Insurer Results Still Lag Behind Some Soft Market Years

But while the $14.5 billion first-half net income total is more than three times the $4.4 billion reported last year, the 2003 result still fell below mid-year income totals for two soft market years, Jersey City-based ISO and the Des Plaines, Ill.-based NAII said.

In particular, the industry's net income for first-half 2003 was 2.5 percent below its income for first-half 1999 and 22.5 percent below its income in first-half 1997--the industry's best year of the past decade.

Also, the industry's surplus level remained 7.9 percent below its peak of $339.3 billion at June 30, 1999, the joint statement said.

On the upside of the surplus picture, the industry's surplus level grew past the $300 billion mark, jumping 9.9 percent to $312.5 billion at June 30 from $284.3 billion at year-end 2002.

John J. Kollar, ISO vice president for consulting and research, observed in a press statement that the industry's annualized rate of return on average surplus rose to 9.7 percent for first-half 2003 from 3.1 percent for first-half 2002.

Mr. Kollar added that the 9.7 percent return was the highest level first-half since 1998, when the annualized return was 9.8 percent, but was still far short of the kind of profitability measures recorded in the last hard market?like a 15 percent annualized rate of return for first-half 1987.

Other key components of net income came in as follows for the first half of 2003:

? Pre-tax operating income (basically pre-tax income excluding the impact of realized gains on investments) climbed 165.9 percent to $15.6 billion for six-months 2003 from $5.9 billion for six-months 2002.

? Net losses on underwriting decreased 77.5 percent in first-half 2003 to $2.7 billion. Improved underwriting results brought the industry's combined ratio down to 99.8?a 5.3 point improvement from first-half 2002.

? Net investment income (primarily dividends from stocks and interest on bonds) grew 2.1 percent to $18.3 billion.

? Realized capital gains totaled $4.5 billion, in contrast to the $0.6 billion in capital losses realized in first-half 2002.

? Net written premiums jumped 11 percent, or $20.1 billion, to $202.8 billion. The 11 percent rate of growth represented a slowdown from a 12.2 percent growth rate reported in first-half 2002.

Mr. Kollar noted that the excess of premium growth over GDP growth narrowed from 9.2 percentage points in first-half 2002 to 7.2 percentage points in first-half 2003. "All this suggests that we are in the mature phase of a hard market, with rate increases tapering downward."

Catastrophe losses nearly doubled in first-half 2003, increasing to $6.5 billion from $3.4 billion in first-half 2002, according to ISO's Property Claim Services unit. The $6.5 billion in catastrophe losses compares with an average of $5.4 billion in first-half catastrophe losses during the ten years from 1993 to 2002.

Don Griffin, NAII assistant vice president for business and personal lines, observed that "first-half results would have been even better if not for the increase in catastrophe losses. While the reported combined ratio for first-half 2003 improved 5.3 percentage points versus one year ago, it would have improved by 6.9 percentage points had catastrophe losses stayed the same."

He added that the industry's combined ratio last fell below 100 percent in 1978, when it was 97.4 percent, basing his observation on full-year data.

Also, the ISO/NAII report noted that the industry's consolidated second-quarter net income was $8 billion, compared with a $933 million net loss in second-quarter 2002.

Second-quarter written premiums rose 9.3 percent to $101.4 billion and the second-quarter combined ratio was 99.9, compared to 107.9 for second-quarter 2002.

The figures in the ISO/NAII report are consolidated estimates based on the reports of insurers that account for 96 percent of all business written by U.S. p-c insurers.