U.S. results show hard market gains: ISO

The release of U.S. 2003 yearend results which show strong improvement in net income, underwriting results and surplus growth are evidence that hard market conditions are manifesting in insurer balance sheets. But softening forces are already being seen in the market, says John Kollar, vice president for consulting and research at the Insurance Services Office (ISO).The ISO released the data in conjunction with the Property Casualty Insurers Association of America (PCI) yesterday, showing net income grew almost 10-times last year to US$29.9 billion. During the same period, underwriting losses dropped 85% to US$4.6 billion, and policyholder surplus grew to a record-high US$347 billion.”Though premium growth is slowing, it is still strong, ” says Kollar. “Of course, one key question at this point is just how long premium growth will remain strong.”Indications of softening are already being felt, with ISO data indicating commercial premium hikes peaked in July 2002 and having been losing steam ever since. “At some point, growth in surplus and improvement in profitability will reinvigorate competition for market share, putting pressure on the price of insurance and undermining premium growth,” he says.The other open question is the health of investment markets, which remains precarious, despite insurers posting US$32.1 billion in capital gains last year. Kollar does not predict a repeat of these gains in 2004. “With interest rates still languishing near 40-year lows and the Federal Reserve Board subject to election-year pressures to keep rates low, it seems that near-term growth in investment income will have to be fueled by acquisition of additional income-producing assets,” says Kollar. “This means growth in investment income will depend largely on positive cash flows from underwriting and reinvestment of investment income as it is received.”