Insurers' Income, Surplus Rise Despite Record Catastrophe Losses

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Insurers' Income, Surplus Rise Despite Record Catastrophe Losses

December 28, 2005

The U.S. property/casualty insurance industry's net income after taxes rose

4.4 percent, or $1.2 billion, to $28.8 billion in nine-months 2005 from $27.6

billion in nine-months 2004. Reflecting the industry's income, its

consolidated surplus, or statutory net worth, increased 5.2 percent, or $20.4

billion,

to $414.3 billion at September 30 from $393.8 billion at year-end 2004,

according to ISO and the Property Casualty Insurers Association of America

(PCI).

The industry's net income and surplus increased despite record catastrophe

losses. Including losses from Hurricanes Dennis, Katrina, Ophelia and Rita,

direct insured property losses due to catastrophes through nine-months 2005

totaled $47.6 billion — nearly double the $27 billion in direct insured

property

losses due to catastrophes through nine-months 2004, according to ISO's

Property Claim Services (PCS) unit. Adjusting for losses covered by residual

market mechanisms and foreign reinsurers, ISO estimates that private insurers'

net

catastrophe losses through nine-months 2005 totaled $27 billion to $32

billion — up from $15.8 billion through nine-months 2004.

(more)

Reflecting sharply higher net catastrophe losses, the industry suffered a

$2.8 billion net loss on underwriting through nine-months 2005 — a $6.1

billion

adverse swing from the $3.2 billion net gain on underwriting through

nine-months 2004.

The figures are consolidated estimates for all private property/casualty

insurers based on reports accounting for about 96 percent of all business

written by private U.S. property/casualty insurers.

With the hurricanes in the first nine months of 2005 generating 2.3 million

insurance claims, repairs to many properties not yet completed, and supply

shortages leading to price increases that make it difficult to estimate repair

costs, total insured losses from those storms could rise significantly in the

months to come. But based on records back to 1949 and adjusting for

inflation, direct losses from catastrophes through nine months have already

risen to

a new record high, with inflation-adjusted direct catastrophe losses through

nine-months 2005 exceeding those through nine-months 1992 when Hurricane

struck by 57.9 percent.

" Given the massive catastrophe losses absorbed by insurers in nine-months

2005, the increase in income and surplus during the first three quarters of the

year is a testament to the underlying financial health of the industry. But

we can't afford to lose sight of the fact that, as bad as Hurricanes Katrina

and Rita were, insurers and the public remain exposed to far more devastating

catastrophes that could strain insurers' ability to fulfill their obligations

to policyholders, " said Heidrich, PCI senior vice president for

policy development and research. " According to PCS, Hurricane Katrina caused a

record $38.1 billion in direct insured losses to property. But catastrophe

modeling by AIR Worldwide shows we face the prospect of hurricanes causing more

than $100 billion in damage. Even as we applaud insurers' success coping with

the catastrophes of 2005, we must do more to assure that insurers and the

people they serve will survive when even more devastating storms strike. "

" The other valuable lesson from the hurricanes of 2005 is that, as daunting

as the prospect of a super catastrophe is, severity is not the only issue, "

said J. Kollar, ISO vice president for consulting and research. " There

were five catastrophic hurricanes in 2004 and five more in 2005 including

Wilma,

and meteorological experts say we're in a cycle of increased storm activity

that could last for decades. Sound risk management requires insurers to

prepare for a sustained increase in the frequency of catastrophic storms.

Insurers

must take a hard look at their exposures, pricing, underwriting, reinsurance

arrangements and the amount of capital they need to support the risk they

take on. "

(more)

Net investment income — primarily dividends from stocks and interest on bonds

— grew 25.9 percent to $36.4 billion in nine-months 2005 from $29 billion in

nine-months 2004. Insurers' investment income in nine-months 2005 benefited

from $3.3 billion in one-time-only special dividends that one insurer

received from an investment subsidiary. Excluding those special dividends,

investment income rose 14.6 percent to $33.2 billion in nine-months 2005, as

insurers'

average holdings of cash and invested assets grew 9.8 percent and the

annualized yield on cash and invested assets rose to 4.1 percent in nine-months

2005 from 4 percent in nine-months 2004.

Reflecting the deterioration in underwriting results consequent to the

increase in catastrophe losses, the industry's annualized rate of return on

average surplus declined to 9.5 percent in nine-months 2005 from 10.3 percent in

nine-months 2004. Excluding $3.3 billion in special dividends one insurer

received from an investment subsidiary, the industry's annualized return through

nine-months 2005 was 8.5 percent — 0.2 percentage points less than average

annualized return through nine months from the start of ISO's quarterly records

in 1986 to 2004.

" The insurance industry's profitability and healthy surplus in the wake of

record catastrophe losses through nine months may turn out to be good news for

insurance buyers who have been bracing for possible rate increases, " observed

Heidrich. " With the price of insurance being determined by the law of supply

and demand, and supply being determined by profitability and capacity,

countrywide results through nine months may mean that rate increases could be

largely limited to those lines and states directly affected by this year's

hurricanes. "

" But insurance markets are complex and there is still substantial uncertainty

about the ultimate cost of this year's hurricanes, the industry's true

profitability through nine-months 2005, and pending developments in insurance

markets, " observed Kollar. " For example, reinsurers will bear ultimate

responsibility for paying a disproportionate share of this year's hurricane

losses,

eating into their surplus and their capacity to provide reinsurance coverage to

primary insurers. Ordinarily, this would lead to upward pressure on prices

in primary insurance markets as primary carriers attempt to pass along

increases in the cost of reinsurance. But, attracted by possible increases in

the

price of reinsurance, new capital is already flowing into the reinsurance

business. The effect of that new capital on pricing going forward will depend on

how aggressively it is deployed and on how the amount of new capital compares

to the amount of capital destroyed by this year's catastrophes. But we won't

know ultimate insurerd losses from the hurricanes of 2005 for quite some time,

as a result of complexities ranging from coverage issues to the impact of

demand surge on repair costs. "

" Further complicating any assessment of the dynamics of reinsurance markets

and how those dynamics will affect primary insurance markets, the

unprecedented losses caused by this year's hurricanes may change insurers'

perceptions of

the amount of risk they've taken on and the amount of reinsurance they

need, " added Heidrich.

Pre-tax operating income — the sum of gains or losses on underwriting, net

investment income and miscellaneous other income — climbed $2.5 billion, or

7.9

percent, to $34.3 billion in nine-months 2005 from $31.8 billion in

nine-months 2004, as increases in net investment income more than offset

deterioration in underwriting results. In addition, miscellaneous other income

rose to

$0.7 billion in nine-months 2005 from negative $0.4 billion in nine-months

2004.

Largely offsetting the $2.5 billion increase in pre-tax operating income,

realized capital gains on investments declined $2.1 billion, or 32.6 percent,

to $4.3 billion in nine-months 2005 from $6.4 billion in nine-months 2004.

The industry's federal income taxes fell $0.8 billion, or 7.6 percent, to

$9.8 billion in the first nine months of 2005 from $10.6 billion in the first

nine months of 2004.

Combining realized capital gains and net investment income, net investment

gains rose $5.4 billion, or 15.3 percent, to $40.7 billion in the first nine

months of 2005 from $35.3 billion in the first nine months of 2004.

The net loss on underwriting in nine-months 2005 amounts to 0.9 percent of

the $309.9 billion in premiums earned during the period. The net gain on

underwriting through nine-months 2004 amounted to 1.1 percent of the $308

billion

in premiums earned during that period.

The combined ratio — a key measure of losses and other underwriting expenses

per dollar of premium — rose 2.2 percentage points to 100 percent during the

first nine months of 2005 from 97.8 percent a year earlier. Nonetheless, the

combined ratio for nine-months 2005 was the second best combined ratio

through nine months since the start of ISO's quarterly records in 1986,

surpassed

only by the combined ratio through nine-months 2004.

The $20.4 billion increase in the industry's consolidated surplus in

nine-months 2005 compares with a $22.3 billon increase in nine-months 2004. The

increase in surplus in nine-months 2005 consisted of $28.8 billion in net income

after taxes and $6.3 billion in new funds paid in, less $0.4 billion in

unrealized capital losses on investments, $9.6 billion in dividends to

stockholders and $4.7 billion in miscellaneous charges against surplus.

Source: PCI, ISO, III

[Guest guest]

OMG, that is such a nauseating article. They are

crooks and still raking it in!

--- snk1955@... wrote:

>

> Insurers' Income, Surplus Rise Despite Record

> Catastrophe Losses

> December 28, 2005

> The U.S. property/casualty insurance industry's net

> income after taxes rose

> 4.4 percent, or $1.2 billion, to $28.8 billion in

> nine-months 2005 from $27.6

> billion in nine-months 2004. Reflecting the

> industry's income, its

> consolidated surplus, or statutory net worth,

> increased 5.2 percent, or $20.4 billion,

> to $414.3 billion at September 30 from $393.8

> billion at year-end 2004,

> according to ISO and the Property Casualty Insurers

> Association of America (PCI).

> The industry's net income and surplus increased

> despite record catastrophe

> losses. Including losses from Hurricanes Dennis,

> Katrina, Ophelia and Rita,

> direct insured property losses due to catastrophes

> through nine-months 2005

> totaled $47.6 billion — nearly double the $27

> billion in direct insured property

> losses due to catastrophes through nine-months 2004,

> according to ISO's

> Property Claim Services (PCS) unit. Adjusting for

> losses covered by residual

> market mechanisms and foreign reinsurers, ISO

> estimates that private insurers' net

> catastrophe losses through nine-months 2005 totaled

> $27 billion to $32

> billion — up from $15.8 billion through

> nine-months 2004.

> (more)

> Reflecting sharply higher net catastrophe losses,

> the industry suffered a

> $2.8 billion net loss on underwriting through

> nine-months 2005 — a $6.1 billion

> adverse swing from the $3.2 billion net gain on

> underwriting through

> nine-months 2004.

> The figures are consolidated estimates for all

> private property/casualty

> insurers based on reports accounting for about 96

> percent of all business

> written by private U.S. property/casualty insurers.

> With the hurricanes in the first nine months of

> 2005 generating 2.3 million

> insurance claims, repairs to many properties not

> yet completed, and supply

> shortages leading to price increases that make it

> difficult to estimate repair

> costs, total insured losses from those storms could

> rise significantly in the

> months to come. But based on records back to 1949

> and adjusting for

> inflation, direct losses from catastrophes through

> nine months have already risen to

> a new record high, with inflation-adjusted direct

> catastrophe losses through

> nine-months 2005 exceeding those through

> nine-months 1992 when Hurricane

> struck by 57.9 percent.

> " Given the massive catastrophe losses absorbed by

> insurers in nine-months

> 2005, the increase in income and surplus during the

> first three quarters of the

> year is a testament to the underlying financial

> health of the industry. But

> we can't afford to lose sight of the fact that, as

> bad as Hurricanes Katrina

> and Rita were, insurers and the public remain

> exposed to far more devastating

> catastrophes that could strain insurers' ability to

> fulfill their obligations

> to policyholders, " said Heidrich, PCI

> senior vice president for

> policy development and research. " According to PCS,

> Hurricane Katrina caused a

> record $38.1 billion in direct insured losses to

> property. But catastrophe

> modeling by AIR Worldwide shows we face the

> prospect of hurricanes causing more

> than $100 billion in damage. Even as we applaud

> insurers' success coping with

> the catastrophes of 2005, we must do more to assure

> that insurers and the

> people they serve will survive when even more

> devastating storms strike. "

> " The other valuable lesson from the hurricanes of

> 2005 is that, as daunting

> as the prospect of a super catastrophe is, severity

> is not the only issue, "

> said J. Kollar, ISO vice president for

> consulting and research. " There

> were five catastrophic hurricanes in 2004 and five

> more in 2005 including Wilma,

> and meteorological experts say we're in a cycle of

> increased storm activity

> that could last for decades. Sound risk management

> requires insurers to

> prepare for a sustained increase in the frequency

> of catastrophic storms. Insurers

> must take a hard look at their exposures, pricing,

> underwriting, reinsurance

> arrangements and the amount of capital they need to

> support the risk they

> take on. "

> (more)

> Net investment income — primarily dividends from

> stocks and interest on bonds

> — grew 25.9 percent to $36.4 billion in

> nine-months 2005 from $29 billion in

> nine-months 2004. Insurers' investment income in

> nine-months 2005 benefited

> from $3.3 billion in one-time-only special

> dividends that one insurer

> received from an investment subsidiary. Excluding

> those special dividends,

> investment income rose 14.6 percent to $33.2

> billion in nine-months 2005, as insurers'

> average holdings of cash and invested assets grew

> 9.8 percent and the

> annualized yield on cash and invested assets rose

> to 4.1 percent in nine-months

> 2005 from 4 percent in nine-months 2004.

> Reflecting the deterioration in underwriting results

> consequent to the

> increase in catastrophe losses, the industry's

> annualized rate of return on

> average surplus declined to 9.5 percent in

> nine-months 2005 from 10.3 percent in

> nine-months 2004. Excluding $3.3 billion in special

> dividends one insurer

> received from an investment subsidiary, the

> industry's annualized return through

> nine-months 2005 was 8.5 percent — 0.2 percentage

> points less than average

> annualized return through nine months from the start

> of ISO's quarterly records

> in 1986 to 2004.

> " The insurance industry's profitability and healthy

> surplus in the wake of

> record catastrophe losses through nine months may

> turn out to be good news for

> insurance buyers who have been bracing for possible

> rate increases, " observed

> Heidrich. " With the price of insurance being

> determined by the law of supply

> and demand, and supply being determined by

> profitability and capacity,

> countrywide results through nine months may mean

> that rate increases could be

> largely limited to those lines and states directly

> affected by this year's

> hurricanes. "

> " But insurance markets are complex and there is

> still substantial uncertainty

> about the ultimate cost of this year's hurricanes,

> the industry's true

> profitability through nine-months 2005, and pending

> developments in insurance

> markets, " observed Kollar. " For example, reinsurers

> will bear ultimate

> responsibility for paying a disproportionate share

> of this year's hurricane losses,

> eating into their surplus and their capacity to

> provide reinsurance coverage to

> primary insurers. Ordinarily, this would lead to

> upward pressure on prices

> in primary insurance markets as primary carriers

> attempt to pass along

> increases in the cost of reinsurance. But, attracted

> by possible increases in the

> price of reinsurance, new capital is already flowing

> into the reinsurance

> business. The effect of that new capital on pricing

> going forward will depend on

> how aggressively it is deployed and on how the

> amount of new capital compares

> to the amount of capital destroyed by this year's

> catastrophes. But we won't

> know ultimate insurerd losses from the hurricanes

> of 2005 for quite some time,

> as a result of complexities ranging from coverage

> issues to the impact of

> demand surge on repair costs. "

> " Further complicating any assessment of the dynamics

> of reinsurance markets

> and how those dynamics will affect primary insurance

> markets, the

> unprecedented losses caused by this year's

> hurricanes may change insurers' perceptions of

> the amount of risk they've taken on and the amount

> of reinsurance they

> need, " added Heidrich.

> Pre-tax operating income — the sum of gains or

> losses on underwriting, net

> investment income and miscellaneous other income —

> climbed $2.5 billion, or 7.9

>

=== message truncated ===

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