(New Hartford, NY) - Utica National Insurance Group's property-casualty insurance operations have made a substantial turnaround from this time a year ago, posting net income after taxes of $12.2 million through September, an improvement of nearly $54 million.

The companies' loss ratio of 65.6 has improved 15.2 points for the same period and is now within 3.9 points of plan. On a dollar basis, losses incurred are nearly $80 million better than this time last year. "This is an excellent and very welcome result," said J. Douglas Robinson, President and CEO.

Utica National and the rest of the insurance industry saw a number of factors converge in 2001, all of which had a severely negative impact on operating results. Problems included mounting loss development on older claims, a spike in medical inflation affecting auto and workers' compensation claims, sharply diminished investment returns, and the losses from the heinous terrorist attack on New York City. "All of these elements dramatically exacerbated the fact that rates, particularly in commercial lines, had been depressed for a number of years," Mr. Robinson said. Utica National went on to post a record loss of $117 million by year-end, and the industry lost billions.

He said that loss development on older claims was a particularly expensive problem until early this year but has abated. "As we progressed into 2002, the only holdout was workers' compensation, but development in that line has improved as well. In fact, we've taken the extra step since the beginning of the year to review every workers' compensation claim file and we feel confident about what we've reserved for each individual claim," he said.

"Our people have been working tirelessly to improve our underwriting result and the company owes a debt of gratitude to all of them, and to our independent agents who have helped us so much in this effort," he said.

Utica National has parted with some of the business that has caused the loss problems, an action that has led direct written premiums to drop by 3% since a year ago, to stand at $544 million through September. However, the company has brought rates up on its remaining business and in 2002 has seen a 15-20% average increase in premium per commercial exposure. "That increase in premium per exposure has been a big factor in bringing our commercial lines loss ratios down within acceptable levels. Personal Lines has not performed as well due to the tight pricing controls placed on us by the states where we do business," Mr. Robinson said.

He indicated that decreased investment income will continue to be a considerable factor in the insurance business and in rate-setting. Investment income has subsidized the cost of insurance for better than two decades, with 1978 being the last year that the property-casualty insurance industry made money on the underwriting of insurance. "Like the rest of the industry, we saw investment income decline in the first nine months of the year, in our case by 5.2% through September, to finish almost $5 million behind plan. And that's with less than 6% of our assets in the stock market. Our bond portfolio, where most of our investments are placed, withstood hits from WorldCom, Qwest, and a few others that totaled some $25 million. Our goal was to preserve our capital, so we sold other bonds at a gain to make up for the losses. However, taking those gains now will have the effect of reducing our investment income going forward," Mr. Robinson said.

He said that the drop in investment yields is going to maintain pressure on the insurance industry to get back to earning money the "old-fashioned way - through the sound underwriting and pricing of our insurance products."

Utica National's life insurance subsidiary, UticaLIFE, also announced results through three quarters, posting operating income after federal taxes of $1.1 million, an improvement of $282,000. Total insurance in force passed the $3 billion dollar mark for the first time ever, according to David C. Cunningham, President of UticaLIFE.