U.S. property/casualty industry posts record 1Q profits

The U.S. property/casualty industry’s net gain on underwriting rose $1.4 billion, or 20.8 percent, to $8.4 billion in first-quarter 2006 from $6.9 billion in first-quarter 2005. The combined ratio–a key measure of losses and other expenses per dollar of premium–improved to 91.2 percent from 92.2 percent.

The $8.4 billion net gain on underwriting is the largest experienced any quarter since the start of records extending back to 1986. Similarly, the 91.2 percent combined ratio for first quarter 2006 is the best for any quarter since 1986.

The industry’s consolidated surplus–its assets minus its liabilities–rose $13 billion, or 3 percent, to $440.1 billion at March 31, 2006, from $427.1 billion at Dec. 31, 2005, according to ISO and the Property Casualty Insurers Association of America.

Much of the increase in underwriting profits is directly attributable to a decline in first-quarter weather-related catastrophe losses. And despite higher profits on underwriting, the industry’s net income after taxes fell $0.7 billion, or 3.8 percent, to $16.7 billion in first-quarter 2006 from $17.4 billion in first-quarter 2005, as investment income declined and federal income taxes increased.

The ISO and PCI industry figures for first-quarter 2006 are consolidated estimates for all private P/C insurers based on reports that account for at least 96 percent of all business written by private U.S. P/C insurers.

Catastrophe losses fell $0.7 billion, or 30.7 percent, to $1.5 billion in the first three months of this year from $2.1 billion in the first three months of 2005, according to ISO. “The decline in catastrophe losses accounts for six-tenths of the improvement in the industry’s combined ratio in first-quarter 2006,” said Gregory Heidrich, PCI’s senior vice president for policy development and research. “With year-to-date catastrophe losses as of June 27 totaling $4.5 billion, or $1.4 billion more than the $3.1 billion in catastrophe losses in first-half 2005, we already know that underwriting results for the first-half of this year will not benefit from a decline in catastrophe losses,” Heidrich added.

“And we have to brace ourselves for more bad news on catastrophe losses as the year plays out,” said Michael R. Murray, ISO assistant vice president for financial analysis.

Reported figures for first-quarter 2006 and first-quarter 2005 reflect three special developments that affected how results for the periods compare. In first-quarter 2006, one large insurer stopped reporting financial results as a P/C insurer and instead began reporting financial results as a health insurer. Also in first-quarter 2006, another insurer changed the accounting for $0.7 billion paid to its foreign parent in 2005, reducing both first-quarter 2006 reported new funds paid in and first-quarter 2006 dividends to shareholders by that amount. And in first-quarter 2005, one insurer received $2.3 billion in nonrecurring special dividends from an investment subsidiary, inflating industry investment income for the period.

Adjusted for these special developments, industry first-quarter 2006 net income after taxes increased $1.7 billion, or 11.4 percent, from $15 billion in first-quarter 2005. Also adjusted for special developments, first-quarter 2006 net gains on underwriting increased $1.5 billion, or 22.1 percent, from $6.9 billion a year earlier, and surplus increased $15.9 billion, or 3.8 percent, from $424.2 billion at year-end 2005.

Based on results, growth in net written premiums slowed to 1.9 percent versus year-ago levels in first-quarter 2006 from 2.4 percent in first-quarter 2005. Adjusted for special developments, written premiums increased 2.5 percent in first-quarter 2006.

“Even with remarkable underwriting results for first-quarter 2006, the industry’s statutory rate of return on average surplus for the 12 months ending March was just 10.1 percent–down from 11.2 percent for the 12 months ending March 2005. Furthermore, we are already seeing signs of an increase in competition that could undermine insurers’ profitability,” Murray said.

“In addition to rising prices, we’re also hearing about availability problems in coastal states in the wake of last year’s record-setting $61.2 billion in catastrophe losses. The countrywide softening in insurance markets and the problems in coastal insurance markets are both natural consequences of the law of supply and demand,” added Murray.

Topics Catastrophe Carriers USA Profit Loss Underwriting Property Market Property Casualty Casualty