A.M. Best: Operating Results Improved Dramatically

April 12, 2004

The property/casualty industry reported vastly improved operating results for both the fourth quarter and full year 2003 when compared with the same periods of 2002, according to a study issued by A.M. Best Company.

Additionally, the industry reported a sorely needed jolt to the bottom line, as total surplus rose sharply by an estimated 22.2 percent during 2003, propelled by strong underwriting results and a noticeable upturn on Wall Street.

As was the case during each of the quarterly reporting periods in 2003, the 9 percent annual percentage change in net premium writings represents a deceleration in premium increases from the reported full calendar year 2002. A.M. Best contends that this is hardly good news for insurers in several market segments, given how poorly accident years 1997-2001 were priced, which is evidenced by the adverse loss-reserve development attributed to these accident years. Although the reported accident-year 2002 combined ratio has shown favorable development in 2003, A.M. Best believes that some of this will reverse out as the accident year more fully matures, and that some insurers are being overly optimistic in booking 2003 reported accident-year picks.

A.M. Best data show that increases in net premiums written scaled back to approximately 4.3 percent and 9 percent in the fourth quarter and the full year 2003, respectively. Nonetheless, the benefits of multiple renewal premium and the adherence to more stringent underwriting standards resulted in the industry reporting a combined ratio of 100.1 for 2003, an improvement of nearly 7.3 points from the full-year 2002 reported calendar-year combined ratio of 107.4.

Driving the industry’s strong financial performance are significantly improved underwriting results, as underwriting losses for the full year 2003 of approximately $4.8 billion represented a near 85 percent reduction from 2002. Although the record-low interest-rate environment contributed to nominal declines in net investment income, operating gains made their way to the bottom line during 2003, as net income surged by an estimated 236.4 percent to $30.8 billion. On a total-return basis, the industry reported a sizable unrealized capital gain of an estimated $26.3 billion attributed to the rebounding stock market, which further propelled gains in surplus.

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