A.M. Best: P-C Third Quarter Good, But Worries Ahead

The rating firm also noted that rate hikes, rigid policy terms and coverage restrictions applied through the past several renewals sharply reduced the industry's underwriting losses, to $5.2 billion during the 2003 first nine months, down from $19 billion in losses one year ago.

A.M. Best forecast that, barring any severe catastrophe or significant declines in stock markets during the fourth quarter, the industry will generate "favorable operating results," adding to surplus for the first time in three years.

Furthermore, market dynamics such as competitors' withdrawals in certain lines of business, combined with limited capacity–especially in some primary and excess casualty markets–will keep price hikes "alive in the near term," A.M. Best predicted.

But on the other hand, A.M. Best expressed concern that the increase in premium writings this year "represents a deceleration in premium increases from the reported full calendar-year 2002."

Despite rising premiums on the percentage basis, the pace of rate hikes continues to moderate, A.M. Best observed, which reflects "heightened price elasticity and rumblings of competitive market forces" driving down prices.

"It's apparent that property rates have reached the peak of the pricing cycle, especially in commercial primary and excess lines," according to the ratings agency. "This is hardly good news for insurers in several key segments, given how poorly accident years 1997 to 2001 were priced," Best said.

Best noted that, as was the case in 2002, the industry continues to post substantial asbestos and environmental charges, as well as adverse development on core loss reserves, particularly in the commercial-lines segment. In the 2003 third quarter alone, the overall industry reported $4.75 billion in adverse loss-reserve developments.