First-Half Results: 'Good, Bad And Ugly'

The report said the industrys net loss on underwriting decreased 38.8 percent to $11.9 billion from $19.4 billion in first-half 2001, with acceleration in premium growth and lower catastrophe losses the contributing factors.

Surplus declined in first-half 2002 largely because of $8.6 billion in unrealized capital losses on investments as a result of stock market declines.

The 12 percent increase in written premiums is the largest first-half gain since 1987, when premiums rose 13 percent, the report noted. However, Mr. Hartwig pointed out, this "truly positive news is tempered by the fact that investment gains fell by 28.3 percent."

Similarly, he said, excitement over the drop in the combined ratio to 105.0 during the first half from 111.1 in last year's first half is accompanied by concern over the $6.7 billion drop in capacity since year-end.

Catastrophe losses fell to $3 billion in first-half 2002 from $6.9 billion in first-half 2001, according to ISO's Property Claim Services unit--their lowest level since first-half 1997, when there were just $1.8 billion in catastrophe losses.

"The decline in catastrophe losses accounts for 1.7 percentage points of the 6 percentage point improvement in the industrys combined ratio for first-half 2002," said Don Griffin, NAII's assistant vice president for business and personal lines. "The bulk of the improvement in the industrys combined ratio--4.3 percentage points--reflects the excess of growth in premiums over growth in non-catastrophe losses and other expenses."

Net investment income--primarily dividends earned from stocks and interest on bonds--declined 4.9 percent to $17.8 billion. Insurers realized $564 million in capital losses on investments, in contrast to $5.3 billion in gains realized in the first half last year. Combining net investment income and realized capital losses, the industrys net investment gain amounted to $17.3 billion, down 28.3 percent from $24.1 billion last year.

"While the increase in first-half net income is welcome news, the industrys recovery since last year's terrorist attack has been hampered by adverse developments in financial markets," commented NAII's Mr. Griffin. "With the uncertain outlook for stock markets, capital losses on investments may continue to eat into insurers' surplus for some time to come."

The ISO/NAII figures are consolidated estimates for the entire industry based on the reports of insurers that account for 96 percent of the U.S. p-c insurance business.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 30, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.