U.S. property/casualty industry records net profit in 2005

Thanks largely to solid investment returns and strong underwriting results, the U.S. property and casualty industry was able to absorb record-high catastrophe losses and report an overall operating profit in 2005, A.M. Best reports.
The U.S. property and casualty industry’s 2005 net income after taxes improved to US$48.4 billion, a 20% increase from 2004 year-end results.
“The industry’s noteworthy operating results were driven by solid investment returns along with prudent underwriting practices and sound risk management implemented throughout the industry,” A.M. Best reports. “As a result of the strong operating performance, surplus grew at a healthy 7.8% pace in 2005, albeit at a lower level than in 2004, driven by significant investment income as cash flows remained positive, equity markets improved and interest rates inched upward.
“As a result of the growth in surplus, return on equity increased to 11.6% in 2005, up nearly 1 point from the 10.7% seen in 2004.”
Although surplus growth demonstrates the fundamental strength of the U.S. property and casualty industry in 2005, A.M. Best observes, the increase is still 5.8 points lower than the 13.6% increase the industry experienced during 2004.
“A.M. Best anticipates surplus growth to continue in 2006, as underwriting profitability returns and growth in net investment income continues,” the ratings agency says.
The U.S. property and casualty industry reported an underwriting loss of US$5.5 billion for 2005, the results affected by catastrophe-related losses from a record-breaking hurricane season. According to the latest estimates by ISO’s Property Claim Services (PCS) unit, 2005 total catastrophe losses at US$57.7 billion were the highest on record (U.S. statutory losses estimated at more than half of this amount); combined with softening marketing conditions, these events caused the U.S. property and casualty industry’s calendar-year combined ratio, a key measure of underwriting profitability, to deteriorate to 100.7% from 98.1% in 2004. Catastrophe losses in 2005 added an estimated 8 points to the combined ratio, which is double the point increase seen in calendar year 2004.