A.M. Best recounts "the year that could have been" for insurers

In its annual review of the U.S. p&c industry, rating agency A.M. Best notes that the industry was able to achieve underwriting profitability despite the effects of devastating catastrophe losses in the third quarter.For the first nine months of 2004, the industry posted an underwriting profit of US$3.4 billion, compared to an underwriting loss of US$5.2 billion at the same point a year earlier, on the back of rate increases and stricter underwriting since 2001. Unfortunately, the impact of four major hurricanes landing on U.S. soil in the third quarter ate away at the US$9.0 billion in underwriting profit which had been achieved in the first half of the year. A.M. Best estimates 55-70% of the US$20.5 billion in hurricane losses will be borne by U.S. insurers, while the rest is accounted for by foreign insurers and government entities.The third quarter’s catastrophe devastation also slowed improvement in the industry’s combined ratio, which improved 2.2 points to 97.8% for the first nine months of 2004. The third quarter ratio was 104.2%, almost 11 points worse than in the first quarter of the year, and an 8.5 deterioration over the second quarter.While the improvement in the combined ratio is linked to a 7.4% increase in earned premiums, which the rater expects to see continue in 2005 as prior-year rate increases earn through, it remains to be seen how the industry will fare in 2006. The premium growth trend "is not sustainable given the noticeable gap between the percentage increases in net written premiums versus net premiums earned, which highlights the reduction in premium writings that will affect earned premium results in 2006".