After reporting its first underwriting profit in decades in 2004, the property-casualty insurance industry's combined ratio climbed back above 100 for 2005, according to preliminary totals compiled by Highline Data–a National Underwriter affiliate.
Initial, unconsolidated regulatory filings published online in Highline Data's Insurance Analyst PRO database showed that the net industry combined ratio for 2005 was nearly 101, compared to 98 in 2004 and just over 100 in 2003. (Highline Data is owned by NU's parent company, Highline Media.)
The 2005 combined ratio, which now stands at 100.8 (including policyholder dividends), is based on annual statement data filed with the National Association of Insurance Commissioners for 2,592 individual companies–94 percent of the insurers expected to file for 2005.
Should the combined ratio hold up at this initial level once all companies have filed and results are tallied, it would mean that some deterioration in underwriting results occurred during the fourth quarter. The nine-month 2005 industry combined ratio reported by the Jersey City, N.J.-based Insurance Services Offices Inc. on Dec. 27 last year was an even 100.
Two weeks prior to the ISO publication last December, analysts polled by the Insurance Information Institute in New York to provide an "early-bird forecast" of results were predicting a 105.3 combined ratio–well off the mark given last week's Highline announcement.
Earlier this year, the Institute, in its February "Groundhog Forecast," published a more optimistic outlook from the analysts, who on average predicted an industrywide combined ratio of 101.8 for 2005 and 97.7 for 2006. The average 2005 prediction is a point higher than the current figure calculated from Highline's information.
The combined ratio for 2005 rose to 100.8, compared to 98.3 for 2004 for the 2,592 filers. (The industry aggregate combined ratios for all filers, which numbered close to 3,100, was actually slightly lower in 2004, coming in at 98.1.)
Underwriting and net income results were dampened by claims from last year's hurricanes, with State Farm and Allstate among the largest insurers reporting worsening combined ratios in 2005 as a result of storm losses.
According to Highline, the sum of net income figures for the companies reporting to the NAIC so far is $49.4 billion for full-year 2005–a jump of 18.5 percent over 2004′s total of $41.7 billion.
The net income total, however, is somewhat skewed by results for Berkshire-Hathaway, which include large net realized capital gains from investments. With Berkshire-Hathaway's income excluded, the sum of net income for the remaining companies reporting through mid-March was flat at $37.0 billion for both years.
While a comparison of the sum of net income figures for 2005 and 2004 for all the individual insurers in the database gives an early indication of how industry income changed last year, the sum for the 2,592 companies reporting so far for 2005 is only a proxy for aggregate net income that will ultimately be reported for the industry.
The true dollar figure for industry aggregate net income–which takes into account intercompany transactions and investments in affiliates–should be lower when it is ultimately reported by Highline Data in June. (Similarly, group income totals shown on the corresponding chart will ultimately be adjusted for intercompany transactions as well.)
Turning to growth, net written premiums barely moved in 2005, rising only 0.7 percent to $426 billion–very much in line with a 1.0 percent average growth prediction of the analysts participating in the Institute's Groundhog survey.
The accompanying chart–which shows net written premiums and other financial items for the top 25 insurance groups ranked by net premiums written in 2005–reveals that only two among the top 25 experienced double-digit growth.
Hartford Fire & Casualty Group, with a 10 percent jump in net premiums, leapt over Chubb to take the number-10 spot on a preliminary ranking. Mercury General, with premiums growing 11.2 percent last year, made its temporary debut among the top 25, while White Mountains Group slid off the list.
A 26 percent premium decline at White Mountain's Folksamerica Reinsurance Company was one factor that took that group off the top-25 list. A similar theme of double-digit premium declines for reinsurance operations was played out for other large insurance groups, including GE Insurance Solutions and Everest Reinsurance, among others.
GE Insurance's sale of Medical Protective to Berkshire-Hathaway was another factor pushing GE Insurance's net premium rank down to 21 from 16 in 2004.
Assuming, however, that regulatory approvals for the acquisition of GE Insurance by Swiss Re wind up as planned by midyear 2006, the combined entity–with more than $5.4 billion of U.S. net written premiums for 2005–should regain its 16th place rank on the top-25 list.
For each of the top groups summarized on the accompanying chart, results for both 2005 and 2004 include those for current members, including those acquired in 2005. For example, Medical Protective's premiums, losses, expenses and income figures are included in Berkshire-Hathaway group for 2005 and 2004.
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