U.S. Insurers Post Record First-Half Income

U.S. property & casualty insurers turned in a record performance in the first six months of 2004, with net income hitting US$23.5 billion, and policyholder surplus reaching $370.4 billion, according to data released by the Insurance Services Office (ISO) and the Property Casualty Insurers Association of America (PCI). This year’s strong performance well outpaces the first half of 2003, when net income was US$14.5 billion and surplus stood at US$312.5 billion.

Gains were made on the underwriting side in the first half of this year, with the industry posting an underwriting profit of US$9.0 billion on a combined ratio of 94.4%, compared to an underwriting loss of $2.7 billion on a combined ratio of 99.8% in the first half of 2003.

Net written premium growth slowed to 4.6% versus 11% in the first half of 2003. Year-to-date 2004 NWP is US$212.1 billion (2003 YTD: US$202.8 billion). Net earned premium growth dropped to 6.6% (2003 YTD: 12.3%) with NPE of US$202.6 billion in the first half of 2004 (2003 YTD: US$190.0 billion).

Net investment gains in the first half of this year were US$24.0 billion (including net realized gains of US$5.0 billion), compared to investment gains of US$22.8 billion (including realized gains of US$4.5 billion) in the first half last year.

However, ISO vice president John Kollar cautions against optimism, warning that industry profitability is already inciting price competition. “ISO MarketWatch data show that actual rate changes on renewals for commercial insurance policies turned positive in mid-1999 and gained momentum through July 2002, when they peaked at 12.9%. But since then, rate changes on renewals dwindled to just 3.7% in March 2004 – less than a third of what they were at their peak.”

The industry will have to deal with the impact of third quarter hurricane losses and the fallout from the investigation of broker commission practices, as well as signs of a pricing slowdown, heading into the last half of the year, notes Robert Hartwig, chief economist for the Insurance Information Institute (III). Premium growth of 4.6% compared to overall economic growth of 6.9% during the first half of 2004 indicates the industry could see a negative real growth situation by late 2004, early 2005, he says. “The fact that the industry’s average return on surplus is an estimated 13.1%, despite a combined ratio of just 94.4% during the first half, is a stark reminder that a renewed commitment to underwriting and pricing discipline are needed if the industry hopes to maintain Fortune 500 rates in 2005.”