Third quarter data shows cat costs

The U.S. property and casualty insurance industry posted US$23.2 billion in net taxed income for the first nine months of 1998, showing a 15% drop from the $27.4 billion made over the same period in 1997. The decline is attributed mainly to higher catastrophe losses, according to Insurance Services Office, Inc. (ISO) and the National Association of Independent Insurers (NAII).

Based on the first nine months alone, 1998 qualifies as the fifth worst year since 1950 in terms of cat losses, observes John Kollar, ISO’s vice president of actuarial services and research. He adds the increased catastrophe losses account for almost three-quarters of the decline in insurers’ operating income.

Operating income for the first nine months of 1998 was down 29.8% from $27.2 billion in 1997. The 15% net income drop would have been significantly higher if not for the industry’s pre-tax combined net investment income and realized capital gains, which increased 8.5% from 1997’s $38.3 billion to $41.6 billion in 1998. Realized capital gains were responsible for the bulk of the upward rush, increasing 78.8% from 1997’s $7 billion to 1998’s $12.5 billion.

Cat losses for 1998’s nine-month period totaled $8.3 billion, compared with $2.4 billion during the same period of 1997. This worsening loss experience resulted in a combined ratio that deteriorated to 104.1 in the first nine months of 1998 from 101.1 in 1997.

Of particular concern for market observers is the net written premium growth, at 1.6% up to $213.3 billion in 1998 from $209.9 billion in 1997. The corresponding figure in 1997 and 1996 was 3.3% and 3% respectively. “If premium growth continues at this pace in the fourth quarter, full-year premium growth may fall to a record low,” says Diana Lee, NAII’s vice president of research services. Dating back to 1960, full year premium growth has never dropped to below 2% she adds.

The American premium growth is a stark contrast to the Canadian p&c industry where the third quarter three-month tally totaled a 7.5% rise in net premiums – or CDN$356 million – over 1997. Year to date through the third quarter, Canadian net premiums written rose 2.9%, $13.9 billion in 1997 to $14.3 billion in 1998.

Net Premiums Written

(in billions)