NEW YORK, June 8, 1998 — The U.S. property/casualty insurance industry's net income after tax declined to $9.2 billion for first-quarter 1998, a 7.1-percent decrease from $9.9 billion in first-quarter 1997. But, adjusting for special, nonrecurring dividends that inflated net income in the first quarter of 1997, the property/casualty industry's first-quarter net income this year increased 15.0 percent versus year-ago levels.
"The first-quarter combined ratio — a measure of losses and other expenses per dollar of premium — was 100.2 percent, the best quarterly combined ratio for the industry since at least 1986," said John Kollar, Insurance Services Office, Inc.'s (ISO) vice president — actuarial services and research. "Excluding the special dividends from last year's first-quarter results, the industry's net income in this year's first quarter was the highest for any quarter in more than a decade," he added.
"The property/casualty industry's income during the first three months of 1998 benefited not only from improved underwriting results, but from higher realized capital gains on invested assets," noted Diana Lee, the National Association of Independent Insurers' (NAII) assistant vice president — research and technical services. "The industry's net loss on underwriting declined to $0.9 billion in first-quarter 1998 from $1.5 billion in first-quarter 1997, and the industry's realized capital gains increased to $4.2 billion from $2.2 billion."
The special dividends in last year's first quarter were the result of two insurers' receiving almost $2.0 billion as affiliated life insurance operations were spun off.
The figures were released by ISO and the 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.
Net income for first-quarter 1998 included the realized capital gains of $4.2 billion and operating income of $8.5 billion. The industry incurred $3.5 billion in income taxes in first-quarter 1998.
The industry's $8.5 billion pre-tax operating income in first-quarter 1998 was 15.4 percent less than its $10.0 billion in pre-tax operating income in first-quarter 1997, but was 5.1 percent higher than its pretax income in first-quarter 1997 after adjusting for that quarter's special dividends.
Property/casualty insurers' first-quarter 1998 operating income included the pre-tax underwriting loss of $0.9 billion and pre-tax net investment income of $9.6 billion.
The industry's $0.9 billion underwriting loss was 35.9 percent less than the $1.5 billion underwriting loss in first-quarter 1997. According to the ISO's Property Claim Services unit, catastrophe losses for first-quarter 1998 totaled $1.0 billion, compared with the $0.9 billion in first-quarter 1997.
The first quarter 1998 underwriting loss reflected $0.5 billion of premiums returned to policyholders as dividends, a decrease of 1.7 percent from the first-quarter 1997 figure.
Net written premium for first-quarter 1998 totaled $71.0 billion, up 2.3 percent from $69.4 billion in first-quarter 1997. This compares with first-quarter written premium growth rates of 3.9 percent for 1997 over 1996 and 3.4 percent for 1996 over 1995.
"The 2.3 percent increase in written premiums in first-quarter 1998 was less than half of the 5.2 percent increase in the nation's current dollar gross domestic product — a broad measure of economic activity and inflation," Kollar noted.
"Were it not for the fact that the industry's loss and loss adjustment expenses rose only 0.4 percent in first-quarter 1998 from first-quarter 1997, the industry's overall underwriting results might have deteriorated," commented Lee.
The $9.6 billion of net investment income (primarily dividends earned from stocks and interest on bonds) was down 15.5 percent from $11.3 billion in first-quarter 1997. Excluding the $2.0 billion in special dividends received by two property/casualty insurers in first-quarter 1997, net investment income in first-quarter 1998 was 2.1 percent above net investment income in the same quarter a year ago.
The realized capital gains of $4.2 billion in first-quarter 1998 were up 91.5 percent from $2.2 billion in first-quarter 1997. Net investment income together with realized capital gains brought the industry's total pre-tax net investment gain for first-quarter 1998 to $13.7 billion, up 1.8 percent from $13.5 billion in the same period a year ago.
The industry's consolidated surplus — its assets minus liabilities — increased $20.2 billion, or 6.5 percent, to $330.5 billion as of March 31, 1998, from $310.2 billion at year-end 1997. Additions to surplus included $8.5 billion of operating income, $13.7 billion of unrealized capital gains, $4.2 billion of realized capital gains, and $1.1 billion of new funds. Charges against surplus included $2.2 billion of stockholder dividends, $3.5 billion of income taxes, and $1.5 billion of miscellaneous surplus changes.
"Much of the growth in surplus is attributable to capital gains. The industry's total capital gains in the first quarter of 1998 amounted to $17.8 billion, more than three quarters of the growth in surplus," said Lee.
"Those capital gains reflect the financial market's strength during first-quarter 1998. The Standard & Poor's 500 rose 8.1 percent during the first quarter," Kollar noted.
OPERATING RESULTS FOR 1998 AND 1997
|NET WRITTEN PREMIUM||70,964||69,388|
|NET EARNED PREMIUM||67,930||66,483|
|INCURRED LOSS & LOSS ADJUSTMENT EXPENSE||49,473||49,297|
|STATUTORY UNDERWRITING GAIN (LOSS)||(405)||(922)|
|NET UNDERWRITING GAIN (LOSS)||(937)||(1,463)|
|PRE-TAX OPERATING INCOME||8,454||9,997|
|NET INVESTMENT INCOME EARNED||9,565||11,317|
|NET REALIZED CAPITAL GAIN (LOSS)||4,181||2,183|
|NET INVESTMENT GAIN||13,746||13,500|
|NET INCOME AFTER TAXES||9,180||9,877|
|COMBINED RATIO, POST-DIVIDENDS||100.2%||101.1%|
Michael R. Murray (ISO)