P-C s' 9-Month Underwriting Best In Years

Further, reflecting insurers' improved income, the industry-wide surplus?or statutory net worth?also rose, to $369 billion at the end of Sept. 2004, up from $347 billion at the end of last year.

The industry's surplus level at the end of 2004 first nine months would have been a record high if not for the inflationary factor. Surplus remained 5.2 percent below its inflation-adjusted high of $389.1 billion on June 30, 1998, according to ISO and PCI.

"Strong underwriting results drove increases in insurers' net income and surplus, with insurers earning $2.8 billion in net gains on underwriting through nine months despite major hurricane losses," observed John Kollar, ISO vice president for consulting and research.

As good as these underwritings results were, they would have been much better if not for the four hurricanes in the third quarter, ISO emphasized. ISO's Property Claim Services unit estimates those storms caused $21.6 billion in direct losses.

Mr. Kollar noted that prior to 2004, p-c insurers suffered net losses on underwriting during the first nine months of every year since at least 1986, when ISO's quarterly records began.

The industry's combined ratio also improved for the first nine months of the year, down 2.4 points to 97.9 when compared to the same period last year. At 97.9, the combined ratio for nine-months 2004 was also the best nine-month combined ratio in at least 19 years, according to ISO estimates.

Increases in investment income and realized capital gains also contributed to the growth in insurers' net income and surplus.

Net investment income rose 3.9 percent to $28.7 billion through nine-months 2004, up from $27.7 billion for the same period last year. And insurers realized $6.5 billion in capital gains on investments in the first nine months of 2004, up from $5.6 billion one year ago. Surplus also benefited from $1 billion in unrealized capital gains not included in income.

Overall, pre-tax operating income–the total sum of gains or losses on underwriting, net investment income and other miscellaneous income–climbed $9.4 billion to $31.2 billion through nine-months 2004, up from $21.8 billion during the same period last year.

One wrinkle in nine-month results, however, may be the slowing premium growth. Property-casualty insurers' written premiums still rose by $13.8 billion to $321.2 billion in nine-months 2004, up from $307.5 billion during the same period last year. But nonetheless, written premium growth slowed to 4.5 percent in the first nine months of 2004, down from 9.7 percent one year ago.

"At 4.5 percent, written premium growth through nine months had dropped to its slowest pace since the 1.8 percent increase in nine-months 1999," said Mr. Kollar.

He noted premium growth had climbed steadily from 1.8 percent in nine-months 1999 to a peak of 13.8 percent in nine-months 2002 but has been slowing down ever since. He said improved profitability seems to have sparked increased competition that "threatens to undermine underwriting results going forward."

The figures are consolidated estimates for all p-c insurers based on reports accounting for 96 percent of all business written by private U.S. p-c insurers.