A.M. Best Reports U.S. Continued Weakening in U.S. Property/Casualty Results for 2000

April 16, 2001

According to a new A.M. Best Co. report, property/casualty results for the fourth quarter and the full year 2000 continued to weaken as the effects of the prolonged soft market overshadowed the benefits of price firming. While the weak results affected the industry’s three sectors-personal, commercial and reinsurance, the reinsurance sector was most impacted.

The industry’s reported combined ratio rose to 115.0 for the fourth quarter of 2000, from 112.1 in the fourth quarter of 1999. This caused the full-year combined ratio to deteriorate more than 2.5 points to 110.4 in 2000 from 107.8 at year-end 1999.

The weak results were more pronounced in the reinsurance segment due to additional retrocession costs related to rising global catastrophes; adverse loss-reserve development; and the ongoing effects of soft pricing. Reinsurers reported a combined ratio of 122.8 for the fourth quarter and 116.4 for the year. The deterioration reflects continued insufficient pricing within the overall property/casualty market and significant actions taken by ceding companies to strengthen prior accident-year loss reserves.

Commercial lines results were heavily influenced by years of pricing deterioration resulting in adverse loss reserve development at many publicly traded groups. Net premiums in this sector grew by 6.6 percent in 2000.

The personal lines segment reported fourth quarter and full-year combined ratios of 114.5 and 110.3, respectively. This sector’s underwriting deterioration was primarily influenced by increased loss costs from rising medical cost inflation, increasing auto repair costs and more severe accidents associated with sport utility vehicles.

A.M. Best’s data indicates that net premiums for the total property/casualty industry rose a moderate 4.9 percent during the fourth quarter and the full year 2000, despite the rate hardening in commercial lines during the latter part of the year. Surplus declined by 4.6 percent due to a reduction in net income and unrealized capital losses, as well as ongoing dividends paid by insurers with excess capital or holding company demands.

Total industry catastrophe losses for the year were 1.4 points lower than in 1999, with 2000 catastrophe losses totaling $4.3 billion, compared with $8.2 billion in 1999. The industry’s earnings drag from asbestos and environmental losses increased by one-tenth of a point.

A.M. Best said it believes the industry is just beginning to address its growing asbestos exposure given the rapidly growing number of claimants and the heightened attention that asbestos is receiving from regulators, investors and rating agencies.

A.M. Best also stated that the weak underwriting results are expected to continue throughout 2001 before mildly improving in 2002.

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