Posted On: December 30, 2005, 8:00 am CST

Posted By: Johnny

Your comments are well received on insurers wanting to raise rates, presumably because of all the losses from the hurricanes, even as profits seem to be coming in at a good pace. But let's not forget that insurance companies are for profit enterprises. Look at the return on surplus quoted in the article...8.5% excluding the one-time dividend. That kind of return may be adequate in the eyes of most regulators, but look at the return on equity ratios posted by some of the best banks in the S&P 500...they are frequently around 15%. Yet there's no outcry about what banks charge (aside from lazy people complaining about ATM fees charged to use other banks' ATMs). The insurance companies need to earn a fair profit to 1) satisfy shareholder's expectations and 2) build up a sufficient capital base to cover exposures. The III argues that the industry's capital base (its surplus) is too light in consideration of the inadequate reserves carries on many long-tailed lines (especially asbestos & environmental exposures)...not to mention terrorism exposure!! If TRIA were to be repealled, the industry does not have enough capital for that potentially unlimited exposure.

That being said, I don't want to see policyholders treated unfairly. After all, I am one too. But let's give the companies a break about raising rates in the Gulf Coast area. Where the exposure is high (and after the past two hurricane seasons, no one could argue it isn't), premiums should be high too. Rates in the region need to be actuarially sound, and they're not yet there.