U.S. P-C Improved Again In '03: Fitch

In 2003, the 55 p-c companies surveyed by Fitch had combined earned premium revenue of some $217 billion, a 19.6 percent boost from 2002.

The Fitch report also indicated that some 70 percent of the companies surveyed had a below-100 combined ratio in 2003?with the total combined ratio for all those surveyed coming in at 98.0?reflecting an attractive pricing environment.

Among the insurers evaluated, only 10 reported higher combined ratios in 2003 compared with the prior year, Fitch observed.

There were also other positive developments?the total net income for the companies surveyed jumped by 108 percent in 2003, due largely to this sharp improvement in underwriting performance, as well as improved overall investment performance, the ratings firm reported.

The overall investment income expanded by five percent?Fitch observed that while portfolio investment yields actually continued to go downhill, companies are benefiting from tremendous growth in invested assets from new cash flow. Furthermore, insurers saw a positive reversal in realized investment gains?from a 2002 pre-tax loss of $4.0 billion to a pre-tax gain of $6.1 billion in 2003?thanks to the investment-market recovery.

The Fitch report also showed that prior-period reserve developments for the companies surveyed dropped in 2003, totaling some $13.2 billion?or 6.1 percent of their earned premiums. While this figure is still high, it is lower than the $18.1 billion of aggregate prior-period reserve developments reported in 2002.

The companies with the highest adverse development during 2003 include: Hartford ($2.8 billion), CNA ($2.5 billion), American International Group ($1.6 billion), and XL Capital ($937 million).

Overall, only five companies in Fitch's analysis revealed an after-tax net loss in 2003?CNA, CNA Surety, Harleysville Group, Hartford and PMA Capital?all of which had significant adverse reserve charges in 2003.

In compiling p-c insurers' 2003 results, Fitch said it looked over GAAP earnings release and 10-K filing data from p-c insurers in its debt-rating universe, as well as data from several other insurance organizations.

Fitch also noted in its report that U.S. reinsurers enjoyed a particularly strong upswing in the past year, following mixed results in 2002. These domestic reinsurers posted an overall combined ratio of 95.1 percent in 2003, compared with 118.7 percent in 2002.

GE Global Insurance Holdings (Employers Re), the largest reinsurer surveyed in the Fitch report, saw its combined ratio drop to 108.4 percent, from 164.9 percent in 2002 when the company booked large reserve-development charges.

In the reinsurance sector, property/catastrophe reinsurers posted the best underwriting results of any of the companies in Fitch's analysis, thanks to the lack of large loss events that materially reached into catastrophe layers. The Bermuda-based property/catastrophe reinsurer IPC Holdings, for instance, reported an eye-catching GAAP combined ratio of 34.9 percent in 2003, while Renaissance Re reported a 56.4 percent combined ratio.

Looking ahead, Fitch cautioned that even companies with an improved bottom line have no time to rest on their laurels, asserting that p-c companies must generate significant underwriting profits to meet their return objectives.

And while Fitch does not anticipate steep pricing declines in the near term, Mr. Auden warned that recent moderation in pricing trends "leads us to question whether rates will keep up with loss cost trends over the next few years, which creates uncertainty regarding profit projections for 2005 and beyond."