The U.S. property/casualty industry’s net income after taxes rose 66.4 percent to $4.6 billion in first-half 2002 from $2.8 billion in first-half 2001, primarily because of improved underwriting results. But the industry’s surplus, or net worth, fell 2.3 percent to $282.9 billion at June 30 from $289.6 billion at year-end 2001, because of capital losses on investments, according to Insurance Services Office, Inc. (ISO) and the National Association of Independent Insurers (NAII).
The industry’s net loss on underwriting decreased 38.8 percent in first-half 2002 to $11.9 billion from $19.4 billion in first-half 2001, with acceleration in premium growth and lower catastrophe losses contributing to the improvement in underwriting results. Surplus declined in first-half 2002 largely because of $8.6 billion in unrealized capital losses on investments as a result of declines in stock markets. Those unrealized losses more than offset additions to surplus including the industry’s $4.6 billion in net income.
Net written premiums climbed $19.6 billion to $182.4 billion in first-half 2002, as premium growth accelerated versus year-ago levels to 12 percent from 9.9 percent in first-half 2001 and 4.3 percent in first-half 2000. The 12 percent increase in written premiums in the first half of 2002 is the largest first-half increase in premiums since 1987, when premiums rose 13 percent versus year-ago levels.
“The substantial improvement in underwriting results and the growth in net income after taxes in the first half of this year reflect changes in the operating environment,” John Kollar, ISO vice president for consulting and research, remarked. “All else being equal, one would expect premiums to grow in proportion to the economy. But with just one exception, premium growth fell short of economic growth every year from 1988 to 2000 as a result of softening in insurance markets. Since then, insurance markets have been firming, and the spread between premium growth and GDP growth widened from 6.8 percentage points in first-half 2001 to 9 percentage points in first-half 2002,” Kollar added.
The figures are consolidated estimates for the entire industry based on the reports of insurers that account for 96 percent of the U.S. property/casualty insurance business.
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 (PCS) unit. At $3 billion, catastrophe losses through six months had fallen to their lowest level since first-half 1997, when there were just $1.8 billion in catastrophe losses.
Overall loss and loss-adjustment expenses increased 3.9 percent to $134.3 billion in first-half 2002 from $129.3 billion in first-half 2001, as non-catastrophe loss and loss-adjustment expenses rose 7.3 percent to $131.3 billion in first-half 2002 from $122.4 billion a year earlier.
Other underwriting expenses — primarily acquisition expenses, other expenses associated with the underwriting process, pricing and servicing insurance policies, and premium taxes — rose 7 percent to $45.9 billion in the first half of this year from $42.9 billion in the first half of last year.
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