Best Reports P/C Insurers “Post Solid Results;” $9 Billion Profit for 1st Half of 2004

September 21, 2004

According to a new special report from A.M. Best Co., the U.S. P/C industry recorded an underwriting profit of nearly $9 billion during the first six months of 2004, a substantial gain from the comparable period of 2003.

Best said: “This solid underwriting performance is even more pronounced when factoring in the improvements achieved by the industry during 2003 and the first quarter of 2004.”

The rating agency cited “robust operating results and unrealized capital gains” as the main contributing factors “to the industry’s surging surplus base, as insurers continue to reap the benefits of the hard market.” It pointed out, however, that the “these results are driven largely by rate increases earning through on policies that were written in prior periods. It is the current pricing and policy-term environment that will drive tomorrow’s results, and most indicators are that rate flattening and modest competition are beginning to emerge.”

Based observed that the “degree of softening varies by industry segment and class of risk, as there are still some undereserved markets where insurers continue to maintain strict policy terms and garner rate increases.”

It also said: “Despite the solid results posted for the first six months of 2004, A.M. Best notes the reduction of year-over-year premium rate increases, which has persisted for consecutive reporting periods since 2003, when rate increases peaked. This trend highlights the industry’s pronounced position on the downward trough of the pricing cycle.” Best’s data shows that “estimated six-month 2004 net premiums written rose a modest 4.6 percent over the comparable period of 2003. This is in stark contrast with the 12.9 percent increase in net premiums written garnered by the industry when comparing 2003 six-month results with the same period of 2002.”

Nevertheless, notes the report, the industry’s “six-month 2004 combined ratio improved by approximately 5.2 points to 94.5 from 99.7 in 2003. The magnitude of the industry’s rebounding underwriting results is even more evident in light of the June 30, 2002, combined ratio of 105.1. The continuous improvement in U.S. property/casualty industry results is attributed to the benefits of rate increases on written policies being earned through the income statement of insurers, as well as the decline in pure losses from comparatively light catastrophe activity and the minor impact of adverse loss-reserve development.”

There are clouds (literally) on the horizon. Best said it expects “loss activity to increase during the second half of 2004, considering the losses tallying up for Hurricanes Charley, Frances and Ivan; the hurricane season still is under way; and concerns regarding the industry’s loss-reserve adequacy.”

BestWeek subscribers can download a PDF copy of all full reports at no additional cost, or a combination of the PDF copies plus all related spreadsheet files of the report data at no additional cost from our Web site at

Nonsubscribers can download a PDF copy of the full report (nine pages) for $50 or a combination of the PDF copy plus the spreadsheet file of the study data for $100 at

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