ISO, NAII Report Nine-Months 1997 Property/Casualty Industry Financial Results

New York, December 8, 1997 — The U.S. property and casualty insurance industry's consolidated net income after tax rose to $26.4 billion in the first nine months of 1997, a 55.8 percent increase from $16.9 billion in the first nine months of 1996.

Net income in the first nine months of 1997 included operating income of $26.5 billion and realized capital gains of $6.9 billion. The industry incurred $7.0 billion in income taxes in the first nine months of 1997, 82.5 percent more than the $3.9 billion in income taxes incurred in the first nine months of 1996.

The figures were released by Insurance Services Office, Inc. (ISO) and the National Association of Independent Insurers (NAII). The figures are consolidated estimates for the entire industry based on the reports of insurers that account for 96 percent of the country's property/casualty insurance business.

The industry's $26.5 billion in pre-tax operating income through nine-months 1997 was 88.0 percent more than its $14.1 billion in pre-tax operating income during the corresponding portion of 1996. Property/casualty insurers' nine-months 1997 operating income included a pre-tax underwriting loss of $4.5 billion and pre-tax net investment income of $30.9 billion.

The industry's $4.5 billion underwriting loss in the first nine months of 1997 was 65.9 percent less than its $13.3 billion underwriting loss during the same period in 1996. According to ISO's Property Claim Services, catastrophe losses for nine-months 1997 totaled only $2.4 billion, compared with $6.5 billion for nine-months 1996. As a result of improved loss experience in the first nine months of 1997, the combined ratio — a measure of losses and other expenses per dollar of premium — was 101.2, the best nine-months combined ratio for the industry for at least the past 15 years.

The underwriting loss for nine-months 1997 was 2.2 percent of earned premiums of $202.6 billion, down from 6.8 percent of earned premiums of $196.0 billion for nine-months 1996.

The nine-months 1997 underwriting loss reflected $2.6 billion of premiums returned to policyholders as dividends, an increase of $0.9 billion from $1.7 billion in the first nine months of 1996.

Net written premium for nine-months 1997 totaled $210.4 billion, up 3.6 percent from $203.1 billion through nine months 1996. This compares with nine-months written premium growth rates of 3.0 percent for 1996 over 1995 and 3.7 percent for 1995 over 1994.

The $30.9 billion of net investment income (primarily dividends earned from stocks and interest on bonds) was up 12.7 percent from $27.5 billion in the comparable 1996 period. Approximately $2.3 billion of the $3.5 billion increase in net investment income was due to large special dividends two property/casualty insurers received from affiliated life insurance companies. Excluding these dividends, net investment income through nine months 1997 was 4.5% above net investment income through nine months 1996.

Realized capital gains of $6.9 billion through nine months 1997 were up 3.2 percent from $6.7 billion through nine months 1996. Net investment income together with realized capital gains brought the industry's total pre-tax net investment gain for nine-months 1997 to $37.8 billion, up 10.8 percent from $34.1 billion for nine-months 1996.

The industry's consolidated surplus — its assets minus liabilities — increased $40.9 billion, or 16.0 percent, to $296.4 billion as of September 30, 1997, from $255.5 billion at year-end 1996. Additions to surplus included $26.5 billion of operating income, $23.0 billion of unrealized capital gains, $6.9 billion of realized capital gains, and $1.6 billion of new funds. Charges against surplus included $7.0 billion of income taxes, $7.7 billion of stockholder dividends, and $2.5 billion in miscellaneous surplus changes.

Dividing premiums for the year ending September 30, 1997, by surplus as of the end of the third quarter shows that the industry's premium-to-surplus ratio fell to a new record low of 0.93, down from 1.10 for the year ending September 30, 1996.

Third-Quarter Results

For the third quarter of 1997, the industry's consolidated net after-tax income was $8.3 billion, compared with net income of $5.2 billion in third-quarter 1996 and $8.2 billion of net income in the second quarter of 1997.

Net income for third-quarter 1997 consisted of pre-tax operating income of $7.8 billion and $3.0 billion of realized capital gains. The industry incurred $2.5 billion in income taxes in the third quarter of 1997, more than double the $1.2 billion incurred in third-quarter 1996.

The industry's third-quarter 1997 pre-tax operating income of $7.8 billion compares with pre-tax operating income of $5.4 billion a year ago. The third-quarter 1997 operating income consisted primarily of a pre-tax underwriting loss of $2.1 billion and pre-tax net investment income of $9.7 billion.

The third-quarter pre-tax underwriting loss of $2.1 billion was 46.9 percent less than the $4.0 billion underwriting loss in the third quarter of 1996. The improvement in underwriting results coincided with a drop in catastrophe losses to $510 million in the third quarter of 1997 from $2.2 billion in the third quarter of 1996.

The third-quarter 1997 underwriting loss represents 3.1 percent of $68.5 billion in earned premiums, down from 6.0 percent of $66.4 billion in earned premiums for the third quarter of last year. The underwriting loss in the third quarter of 1997 included $1.4 billion of premiums returned to policyholders as dividends, up from $0.6 billion in last year's third quarter.

The $9.7 billion of net investment income for the third quarter of 1997 was up 4.6 percent from $9.3 billion in the same period a year ago. Realized capital gains for third-quarter 1997 were $3.0 billion, compared with $0.9 billion in third-quarter 1996. The industry's pre-tax net investment gain, which combines net investment income and realized capital gains, was $12.8 billion in 1997's third quarter, compared with $10.3 billion in 1996's third quarter.

Written premiums totaled $71.3 billion for third-quarter 1997, up 2.5 percent from $69.6 billion for third-quarter 1996. This compares with third-quarter written premium growth rates of 3.2 percent for 1996 over 1995 and 3.4 percent for 1995 over 1994.

OPERATING RESULTS FOR 1997 AND 1996
($Millions)

FIRST NINE MONTHS 1997 1996
NET WRITTEN PREMIUM 210,389 203,144
NET EARNED PREMIUM 202,561 195,978
INCURRED LOSS & LOSS ADJUSTMENT EXPENSE 148,613 155,039
STATUTORY UNDERWRITING GAIN (LOSS) (1,921) (11,587)
POLICYHOLDERS' DIVIDENDS 2,604 1,679
NET UNDERWRITING GAIN (LOSS) (4,524) (13,265)
PRE-TAX OPERATING INCOME 26,547 14,123
NET INVESTMENT INCOME EARNED 30,946 27,466
NET REALIZED CAPITAL GAIN (LOSS) 6,898 6,681
NET INVESTMENT GAIN 37,844 34,148
NET INCOME AFTER TAXES 26,403 16,946
SURPLUS (CONSOLIDATED) 296,380 242,493
COMBINED RATIO, POST-DIVIDENDS 101.2% 105.8%
 
THIRD QUARTER    
NET WRITTEN PREMIUM 71,320 69,564
NET EARNED PREMIUM 68,476 66,396
INCURRED LOSS & LOSS ADJUSTMENT EXPENSE 50,164 51,795
STATUTORY UNDERWRITING GAIN (LOSS) (686) (3,389)
POLICYHOLDERS' DIVIDENDS 1,439 612
NET UNDERWRITING GAIN (LOSS) (2,125) (4,000)
PRE-TAX OPERATING INCOME 7,788 5,401
NET INVESTMENT INCOME EARNED 9,746 9,319
NET REALIZED CAPITAL GAIN (LOSS) 3,021 947
NET INVESTMENT GAIN 12,767 10,266
NET INCOME AFTER TAXES 8,315 5,176
SURPLUS (CONSOLIDATED) 296,380 242,493
COMBINED RATIO, POST-DIVIDENDS 102.0% 104.8%

Release: Immediate

Contacts:
Giuseppe Barone / Erica Helton
MWW Group (for ISO)
201-507-9500
gbarone@mww.com / ehelton@mww.com

Sue McKenna (NAII)
(847) 297-7800

Loretta Worters (III)
(212) 669-9200