Preliminary results show an industry medical malpractice net combined ratio of less than 110 for 2004, some 30 points below combined ratios posted for 2002 and 2003.
While the 2004 result is based on preliminary information, and while it excludes data for one of the largest writers of medical malpractice insurance–Lexington Insurance Company–trends revealed by the data indicate a line that is definitely on the road to recovery. Lexington Insurance, a member of American International Group, was the third largest med mal writer in 2003 based on net premiums.
The following results based on a review of premiums, losses and expense information for recent years on a net and direct basis are noteworthy:
o On a net basis, if loss, premium and expense information for AIG are completely excluded from industry totals for all years, the resulting combined ratio trends are similar to those shown on the accompanying graph. Excluding AIG, the net combined ratios for 2003 and 2004 are 139.3 and 109.6 respectively.
o Excluding premiums for AIG, industry net written premiums rose less than 4 percent in 2004, following two years of double-digit jumps.
o Breaking down combined ratios, on a net basis, the industry pure loss ratio (excluding loss adjustment expenses), which was nearly 98 in 2001, fell to 84 in 2002 and 2003, and fell more than 23 points in 2004 to roughly 61. The loss adjustment expense ratio fell another 6 points, and other underwriting expenses declined slightly.
o On a direct basis, the industry pure loss ratio fell nearly 17 points in 2004, from 81 in 2003 to roughly 64 in 2004.
o Several key states mentioned in the accompanying article showed similar loss ratio declines. In Texas, for example, where direct written premiums dropped nearly 15 percent in 2004, the loss ratio fell more than 35 points.
o Florida insurers posted a 25-point drop in their overall direct pure loss ratio even as premiums fell nearly 4 percent.
o While direct premiums rose in Illinois and Missouri, and remained flat in Connecticut, direct pure loss ratios dropped in those three states as well–falling about 18 points in Illinois, nearly 40 points in Missouri, and 13 in Connecticut.
Net data cited for this analysis is from the Insurance Expense Exhibit of insurer annual statements; direct results are based on state page information.
Reported by Susanne Sclafane
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