To say that 2003 is a critical year for the insurance industry understates the challenges that insurance executives currently are facing. Although the industry last year experienced the most dramatic acceleration in net written premium growth since 1986, the continued erosion in underwriting performance and premium growth during that 16-year gap, coupled with hardened markets and the economic impact of Sept. 11, gave insurers no other choice but to substantially raise premiums in 2002.Earnings season is in full swing, and most carriers are expected to report substantially stronger earnings from a year ago. For starters, the industry's combined ratio, which measures the ratio of losses and expenses to premiums, improved last year to 106.3, compared with 115.7 in 2001, according to estimates by the Insurance Information Institute, New York. What's more, due in large part to a forecasted 12.3% increase in net written premium for 2003, the industry's combined ratio is expected to improve to 103.3, the best performance since 1997 and the second-best performance over the last 18 years.

While this is all welcome news to financially stressed CEOs, the bottom line is: Carriers are still paying out $1.03 for every $1 they take in. And, with the stock market showing little sign of emerging from its three-year slide, insurance executives will need to develop fiscally sound business plans that don't rely on price increases to stabilize their businesses.

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