A.M. Best Report: Property/Casualty Insurers Post Solid Results; Surge in Hurricane Losses Changes Tone for Upcoming Quarters.

OLDWICK, N.J. -- The U.S. property/casualty industry recorded an underwriting profit of nearly $9.0 billion during the first six months of 2004, a substantial gain from the comparable period of 2003, according to a special report released by A.M. Best Co.

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.

Robust operating results and unrealized capital gains contributed to the industry's surging surplus base, as insurers continue to reap the benefits of the hard market. Conversely, 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. The degree of softening varies by industry segment and class of risk, as there are still some underserved markets where insurers continue to maintain strict policy terms and garner rate increases.

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. A.M. Best data show that estimated six-month 2004 net premiums written rose a modest 4.6% over the comparable period of 2003. This is in stark contrast with the 12.9% increase in net premiums written garnered by the industry when comparing 2003 six-month results with the same period of 2002.

Nevertheless, the 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 inpure losses from comparatively light catastrophe activity and the minor impact of adverse loss-reserve development.

However, A.M. Best 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.

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For current Best's ratings, independent data and analysis on more than 3,000 individual property/casualty companies, groups and industry composites, please visit http://www.ambest.com/pc.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.