U.S. insurers take earnings beating

The U.S. property and casualty insurance industry recorded a 32.5% drop in net income to US$10 billion for the first half of 2000 compared with the US$14.9 billion made at the end of June last year. The significant decline is almost entirely attributable to an 88% hike in claim costs which boosted the industry’s net loss on underwriting to US$14.7 billion (June 1999: US$7.8 billion), according to data released by the Insurance Services Office (ISO) and the National Association of Independent Insurers (NAII).

The rise in claim costs for the period pushed the combined ratio to an almost record level of 109.2% against 104.8% set at the end of June 1999. “The 109.2% combined ratio for the first half of this year is the worst underwriting result for the first half of any year since the 111.2% in 1994 when the Northridge earthquake struck southern California,” says John Kollar, vice president of consulting and research at the ISO.

Although net investment income staged a modest improvement over the 12-month period, reaching US$19.4 billion at the end of June 2000, the contribution of capital gains to the bottom-line of the first six months of 2000 remained virtually static at US$7.5 billion. The lower investment returns and higher underwriting costs resulted in the industry’s surplus falling by 2.3% to US$326.7 billion. Although net written premium rose by 4.2% to US$149.3 billion at the end of this halfyear, this benefit was offset by the stark rise in underwriting costs.

Robert Hartwig, chief economist of the Insurance Information Institute (III), is more upbeat of the numbers, “[the] industry is now passing through a trough and is presently in the early stages of a vigorous rebound”. He points to the rise in net written premiums, the 1.5% gain made in investment income, and decline in the industry’s surplus as positive indicators of a future turnaround.