U.S. yearend figures dismal

For the 1999 financial year the U.S. property and casualty insurance industry produced a disappointing 6.6% rate of return compared with 9.2% for 1998 and 11.9% for the year prior.

The industry’s drop in shareholder returns for the year was driven by lower investment gains and a 39.5% year-on-year decline in underwriting losses to US$23.4 billion. The industry’s pre-tax operating income for the year dropped to US$13.9 billion from the previous year’s US$23.4 billion while realized investments came in at US$13.7 billion compared with 1998’s US$18 billion, reports the Insurance Services Office Inc. (ISO) and the National Association of Independent Insurers (NAII).

The result of which saw the industry’s net income for 1999 plummet by 28% to US$22.2 billion compared with that of the previous year. “The deterioration in operating income in 1999 reflected an increase in net losses on underwriting, decreases in investment income, and an unfavorable swing in other miscellaneous income,” states John Kollar, vice president of research at the ISO.

Another area of concern in the yearend figures was lackluster premium growth, observes Diana Lee, the vice president of research services at NAII. “At 1.9%, premium growth in 1999 was virtually unchanged from the record-low 1.8% experienced in 1998. Partly because of the extreme weakness in premium growth over the past two years, premium growth averaged just 3.2% per year in the 1990s compared to 8.7% per year in the 1980s and 12.1% per year in the 1970s.”

The increase in the industry underwriting loss boosted the combined ratio for the year to 107.9% compared with 1998’s 105.6%. “Underwriting results would have been even worse were it not for a decline in catastrophe losses,” Lee notes. The cost of catastrophe claims for 1999 amounted to US$8.3 billion — more than 17% below the US$10.1 billion posted for the year prior.

Commenting on the yearend results, the Insurance Information Institute’s (III) vice president and chief economist, Robert Hartwig, points out, in addition to the almost flat growth in net premiums, the year also saw loss adjustment expenses rise by 4.9%. In addition, the drop in bond values of last wiped out nearly US$55 billion in the market value of the industry’s bond holdings. The declining returns produced by the industry resulted in a poor rating by the investment community he notes, “Wall Street was unkind to the property and casualty insurance industry in 1999. On a market cap weighted-basis, industry stocks lost 25.7% of their value compared to a gain of 21% for the Standard & Poor’s 500 Index…Multi-line [composite] insurers and brokers had a good year, posting gains of 32.4% and 64.1% respectively.”