Nearly $50 billion in direct insured property losses moved property-casualty industry financial results off their record-breaking pace for the year, but the nine-month combined ratio–at 100–was still the second best on record.
According to a joint report released by the Jersey City, N.J.-based Insurance Services Office and the Property Casualty Insurers Association of America, based in Des Plaines, Ill., a net underwriting loss of approximately $2.8 billion represented a $6.1 billion adverse swing from an underwriting gain of just over $3.2 billion last year.
But when total losses and expenses through nine months of this year were compared to net written premiums of $320.6 billion and net earned premiums of $309.9 billion, the combined ratio still managed to come in at just about breakeven, or 100.
(Technically, the combined ratio, a measure of underwriting profitability, is the sum of three ratios–the ratio of losses and loss expenses to earned premiums, the ratio of underwriting expenses to written premiums, and the ratio of dividends to earned premiums.)
In the report published earlier today, according to ISO's quarterly records dating back to 1986, only the nine-month combined ratio for the first nine months of 2004 of 97.8 was better than the nine-month 2005 result.
The U.S. p-c insurance industry managed to post its break-even combined ratio, and net income after taxes of $28.8 billion for the first nine months, in spite of direct insured losses from Hurricanes Dennis, Katrina, Ophelia and Rita of $47.6 billion. This was nearly double the $27 billion in direct insured property catastrophe losses through nine months of 2004.
The $28.8 billion net income figure was 4.4 percent higher than net income of $27.6 billion reported for the first nine months of 2004.
ISO estimated that net catastrophe losses impacting the bottom line for U.S. insurance companies writing on a voluntary basis were in the range of $27 to $32 billion, up from $15.8 billion through nine months of 2004. (Net catastrophe losses were determined by reducing the direct loss figures for losses covered by residual market mechanisms and losses ceded to foreign reinsurers.)
Other highlights of the report included:
o Weak premium growth figures–a 0.5 percent decline in written premiums for nine months and a 6.0 percent decline in the quarter; and
o A 5.2 percent increase in consolidated surplus, or statutory net worth, to $414.3 billion as of Sept. 30 from $393.8 billion at year-end 2004.
With respect to premiums, the report shows a $1.7 billion decline in net written premiums through nine months–to $320.6 billion–and a $6.5 billion decline in the third quarter to $103.3 billion. But ISO and PCI reported that industry results were impacted by a transaction in which one unidentified U.S. insurer ceded $6 billion in premiums and losses to its foreign parent. Excluding this transaction, net premiums for the industry rose 1.3 percent for the first nine months, net earned premiums rose 2.5 percent, and net loss and loss expenses jumped 5 percent.
Even the adjusted premium growth figure–at 1.3 percent for the first nine months–is a record low, the report said. It also noted that since the peak of the last cycle–when 13.8 percent nine-month premium growth was recorded in 2002–growth levels have slowed, falling to 9.7 for the same period in 2003 and then to 4.8 percent in 2002.
For the third quarter, even after adjusting for the transaction discussed above, the adjusted third-quarter growth figure shows a slight decline–0.5 percent–representing the first third-quarter premium decline included in ISO's records.
The figures are consolidated estimates for p-c insurers accounting for about 96 percent of all business written in the U.S.
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