The US property/casualty industry's net income dropped by more than a third in the first quarter of the new millennium.

Net income after taxes dropped 35.4 percent to $5.8 billion, down from $9 billion in the first quarter of 1999, according to Insurance Services Office (ISO) and the National Association of Independent Insurers (NAII).

Contributing to the decline in net income was a doubling of the industry's net loss on underwriting to $6.1 billion in the first quarter of this year, from $2.9 billion the same time last year.

"The industry's net loss on underwriting ballooned because growth in loss and loss adjustment expenses far exceed growth in premiums, and underwriting results will continue to deteriorate so long as the large imbalance between growth in losses and growth in premiums persists,'' said ISO consulting and research vice president John Kollar.

"The decline in net gains on investments is consistent with developments in financial markets. In first-quarter 2000, the S&P 500 stock index rose just two percent, less than half of the 4.6 percent increase in first-quarter 1999,'' he added.

The underwriting loss in first-quarter 2000 amounts to 8.6 percent of the $71.1 billion in premiums earned during the quarter, up from 4.3 percent of the $69 billion in premiums earned during first-quarter 1999.

Underwriting results deteriorated in first-quarter 2000, primarily because of a sharp increase in loss and loss adjustment expenses.

The industry incurred $56.3 billion in loss and loss adjustment expenses in first-quarter 2000, up $4.7 billion or 9.1 percent from $51.6 billion in first-quarter 1999.

The industry's net loss on underwriting doubled despite an increase in premium growth.

Industry net written premiums for first-quarter 2000 were $74.2 billion, up 3.2 percent from $71.9 billion in the same period a year ago.

"Acceleration in premium growth is always good news from insurers' perspective, but it is too soon to declare that the pricing cycle has turned,'' said NAII's research services vice president Diana Lee.

Insurers' total capital gains -- the sum of their realised capital gains or losses and their unrealised capital gains or losses -- fell $2.2 billion, or 63.9 percent to $1.2 billion in first-quarter 2000 from $3.5 billion in first-quarter 1999.

"The turnaround in investment income may be the long-awaited effect of increases in interest rates,'' said Kollar.

"But increases in interest rates cause bond prices to decline, and bonds account for about two thirds of insurers' cash and invested assets.

"If the upward trend in interest rates continues, any insurers that need to sell bonds may be forced to realise losses.''