Driven by the largest natural catastrophe in U.S. history, Hurricane Katrina, the U.S. property/casualty industry’s underwriting loss was $2.8 billion for the first nine months of 2005, reversing the $3.4 billion underwriting gain reported during the same period of 2004, according to a recent study by A.M. Best Co.
While Katrina grabbed the headlines with an insured damage estimate of $38.1 billion, according to ISO’s Property Claim Services unit, several other hurricanes also contributed to the underwriting loss during a very active hurricane season. Excluding the catastrophe losses, core underwriting results were strong, as rate increases earned on policies written in prior periods positively impacted earnings.
Before Hurricane Katrina, rate decreases and competition on many lines began to emerge throughout the majority of 2005. However, following this event, the trend of rate declines reversed on some lines of business, particularly in those areas directly impacted by the hurricane, and stalled on others. While this rate environment will have a positive impact on future results, A.M. Best believes the retreat from rate decreases will be short-lived.
Following the close of the books on the first three quarters of 2005, Hurricane Wilma, a strong hurricane from the Gulf of Mexico, struck Florida and caused significant damage, with much of the devastation surprisingly impacting the eastern coast of the state. While overshadowed by Katrina, Wilma was a devastating event with an insured damage estimate of approximately $6.1 billion, according to Property Claim Services.
The increase in the industry’s reported combined ratio, a key measure of underwriting profitability, in the first three quarters of 2005 compared with the same period of the prior year reflected a 1.3-point increase in the loss and loss-adjustment expense ratio and a 0.7-point increase in the underwriting expense ratio. While four devastating hurricanes in the southeastern United States negatively impacted the first three quarters of 2004, the insured losses from catastrophes during this time period were $15.4 billion, or 4.9 points on the combined ratio.
This compares with $29.4 billion of U.S. statutory catastrophe losses for the first three quarters of 2005, primarily from Katrina and Rita, or 9.2 points on the combined ratio. With net written premium growth slowing to 0.8% for the first three quarters of 2005, underwriting expense increases moderately outpaced premium growth. A&E losses continue to be moderate and increased slightly to 0.9 points of the combined ratio in the first three quarters of 2005, up from 0.8 points in the same period of 2004. However, with the underfunded position of A&E reserves, it is likely that underwriting results will be impacted by some A&E charges that will be taken in the fourth quarter of 2005.
Source: A.M. Best
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