P&C insurance suffers underwriting loss

The property and casualty insurance industry in the US has suffered an underwriting loss of US$2.8 billion for the first nine months of 2005 as a result of Hurricane Katrina, reversing the $3.4 billion underwriting gain reported during the same period of 2004, according to a recent study by A.M. Best Co. Insured damage estimates related to Katrina were quoted at US$38.1 billion, according to ISO’s Property Claim Services unit, but several other hurricanes added to the underwriting loss. A.M. Best reports that excluding the catastrophe losses, core underwriting results were strong, as rate increases earned on policies written in prior periods positively impacted earnings.Prior to Hurricane Katrina, the majority of 2005 saw the emergence of rate decreases and competition on many lines. After Katrina hit this trend toward rate declines reversed on some lines of business, particularly in areas directly impacted by the hurricane, and stalled on others. While this rate environment will have a positive impact on future results, A.M. Best reports the retreat from rate decreases will be short-lived.Following the close of the books on the first three quarters of 2005, A.M. Best notes that Hurricane Wima struck Florida and caused significant damage, with much of the devastation impacting the eastern coast of the state. While overshadowed by Katrina, Property Claim Services reported that insured damage estimates related to Wilma rose to a figure of approximately US$6.1 billion.A.M. Best reports that the increase in the industry’s reported combined ratio in the first three quarters of 2005 compared with the same period of the prior year reflected a 1.3-point increase in the loss and loss-adjustment expense ratio and a 0.7-point increase in the underwriting expense ratio. The four hurricanes in the southeastern US, A.M. Best adds, negatively impacted the first three quarters of 2004, so that the insured losses from catastrophes during this time period were $15.4 billion, or 4.9 points on the combined ratio.This compares with US$29.4 billion of US statutory catastrophe losses for the first three quarters of 2005, which A.M. Best says was primarily related to Katrina and Rita. With net written premium growth slowing to 0.8% for the first three quarters of 2005, the rating agency says that underwriting expense increases moderately outpaced premium growth. A&E losses continue to be moderate and increased slightly to 0.9 points of the combined ratio in the first three quarters of 2005, up from 0.8 points in the same period of 2004, according to A.M. Best. The report notes however that due to the underfunded position of A&E reserves, it is likely that underwriting results will be impacted by some A&E charges that will be taken in the fourth quarter of 2005.