U.S. property/casualty industry profits take 5.8% hit in 2007

The U.S. property and casualty insurance industry’s profits took a 5.8% hit in 2007, slipping to US$61.9 billion last year from US$65.8 billion in 2006.
By contrast, the Canadian property and casualty industry saw its net income fall 3.6% in 2007, down to Cdn$4.008 billion, according to statistics published by MSA Research Inc.
The U.S. property and casualty insurance industry’s overall profitability (as measured by its rate of return on average policyholders’ surplus) dipped to 12.3% in 2007 from 14.4% in 2006, according to The Insurance Services Office [ISO], the Insurance Information Institute [III] and the Property and Casualty Insurers Association of America [PCI]. The three groups issued a joint press release announcing the U.S. results.
“Driving the erosion in net income and overall profitability, the [U.S.] property/casualty insurance industry’s net gains on underwriting fell 38.9% to [US]$19 billion in 2007 from [US]$31.1 billion the year before,” the press release notes.
“The combined ratio a key measure of losses and other underwriting expenses per dollar of premium edged up to 95.6% in 2007 from 92.4% in 2006,” according to ISO and the PCI.
In Canada, the property and casualty insurance industry saw its combined ratio climb from 92.4% in 2006 to 94.6% in 2007.
ISO and PCI both observed that despite the deterioration of underwriting results in the United States, the 95.6% combined ratio for 2007 “is the second best for any year since 1959, when ISO’s annual records begin.”
Even so, underwriting results weren’t good enough for insurers to achieve the rate of return typically earned by firms in other industries, said Michael R. Murray, ISO assistant vice president for financial analysis.
With full-year 2007 investment results, financial leverage, and tax rates, ISO estimates the combined ratio for the U.S. industry would have had to be more than 2 percentage points better 93.3% for insurers to have earned the same 13.9% long-term average rate of return as the Fortune 500.