WASHINGTON--Property-casualty insurers are getting rich by"methodically overcharging consumers," reducing coverage,underpaying claims and having taxpayers pay some of the tab forrisks insurers should cover, the Consumer Federation of Americasaid in a report today.

Using a number of common measures of financial health, the studyfound that "balance sheets for property-casualty insurers are inbetter condition overall than at any time in history," with recordprofits and low losses in recent years.

The report came under immediate fire from insurerrepresentatives as a repetition of old and "misleading" allegationsand an industry economist called it "fatally flawed."

The report said the "pure" loss ratio--the actual amount of eachpremium dollar insurers pay back to policyholders in benefits--wasonly 54.6 cents in 2007.

"Over the past 20 years, the amount paid back as benefits hasdramatically declined from over 70 cents per premium dollar,indicating a huge loss in the value of insurance to consumers," thereport added.

"Consumers ultimately pay the price for the unjustified profits,padded reserves and excessive capitalization that exist right nowin the insurance industry," said J. Robert Hunter, CFA director ofinsurance, who unveiled the report at a press conference.

He said his analysis indicates that "over the last four yearsthe typical American family has paid $870 too much" for their p-cinsurance coverage.

Mr. Hunter's study estimates that after-tax returns for 2007 areabout $65 billion, just under the record level set in 2006. Ifinsurers release even a small part of their swollen reserves asprofits, final profits for 2007 will exceed those of 2006, he said.Profits for the record years of 2004, 2005, 2006 and 2007 areestimated to be $253.1 billion.

And, he said the loss and loss adjustment expense (LAE) ratiofor 2007 is estimated to be 66.7 percent, the second lowest in the28 years studied. Five of the seven lowest loss and LAE ratios inthe last 28 years have occurred since 2003, Mr. Hunter said hisanalysis had determined.

He said his study also estimates that, in 2007, publicly tradedinsurers will earn a return on equity (ROE) of more than 19percent, well in excess of what is required by investors.

The lower industrywide ROE that insurers report underestimatesthe industry's actual ROE, Mr. Hunter said.

Insurers, according to his analysis, "have succeeded at beinginsulated from risk."

They have done this through the "wise use of reinsurance," whichhe praised, but also through such means as anti-concurrent clausesin policies, caps on rebuilding costs, caps on compensation forbringing a building up to code, and through price hikes.

He noted that some markets are seeing prices come down a bit,mostly away from coastal areas, but called it "too little, too lateand said that "much more needs to be done."

Insurers, said Mr. Hunter, have maintained "sharp limits oncoverage and availability," imposing "harsh homeowner's rateincreases and using computer-designed programs created tosystematically underpay claims.

Mr. Hunter said taxpayer subsidies have also reduced insurers'costs, mentioning the Terrorism Risk Insurance Act that Congressextended last year. The study estimates that insurance companieshave received a subsidy of about $4 billion to date because they donot have to pay premiums for the terrorism reinsurance provided bythe federal government.

"Some insurers have urged Congress to create a similar programto cover natural disasters. Mr. Hunter said.

Insurers have also received significant taxpayer support at thestate level, through the creation of state-directed "insurers oflast resort," he said. The existence of these companies allowsinsurers to "cherry pick," by insuring lower risk householdsthemselves and sending higher risk households to the statecompany.

"Only Florida has taken steps to end this practice," hesaid.

Marc Racicot, president of the American Insurance Association,said in a response: "Predictably, Bob Hunter and the ConsumerFederation of America are once again ignoring the facts and usingthe same old tired arguments to mislead the public into believingsomething that isn't true."

David Sampson, president and chief executive officer of theProperty Casualty Insurers Association of America (PCI), said,"Each year, the CFA issues another report with essentially the sameallegations, and its most recent claims of market misconduct are nomore reflective of the actual market conditions than they were whenthey issued a similar report a year ago."

A "healthy and strong insurance industry is good for consumers,because this enables insurers to have sufficient capital to payclaims when major catastrophes occur and spurs greater competitionamong companies," he added.

PCI said in a statement that according to data compiled byMarketScout in Dallas, rates as of November 2007 were down 15percent on a composite basis for all business property and casualtycoverage placed in the United States.

In addition, according to PCI, the report said that the November2007 consumer price index for personal auto insurance was up onlyabout 0.2 percent from last year--much less than the 4.3 percentincrease in overall consumer inflation recorded during the sameperiod.

"Profits for 2007 are in large part due to a year that has beenabsent of major catastrophe losses and only offset less thanstellar returns achieved in previous years," PC said.

Despite the financial health of the industry as a whole, it isimportant to note that these figures are for all lines ofbusiness--from auto to workers' compensation--in all parts of thecountry, PCI officials said.

"The national numbers demonstrate that through investment gainsand sound risk management in states not exposed to the extremes ofhurricane losses, the industry is performing well," said GenioStaranczak, PCI's chief economist.

Robert Hartwig, also an economist as well as president of theInsurance Information Institute, in a statement called the study"fatally flawed" and said it "grossly distorts the financialposition of auto, home and business insurers."

Mr. Hartwig pointed out that the CFA study criticizes privateauto and home insurers, but actually includes data fromgovernment-run insurers that sell, among other things, workers'compensation insurance, thereby artificially inflating its figuresfor industry retained earnings or policyholder surplus.

The CFA, he said, "compounds this error by double-counting tensof billions of dollars in surplus on the books of individualinsurers. Consequently, the CFA overstates the industry's claimspaying capacity by approximately $160 billion in 2007."

CFA, Mr. Hartwig, said, estimates that policyholder surplus in2007 totaled $687 billion, when the actual figure is approximately$530 billion--a difference of 30 percent.

An improved capital position, said Mr. Hartwig, will helpinsurers pay future large-scale catastrophe losses and meet highercapital requirements imposed on them by ratings agencies in thewake of storms like Hurricane Katrina (which produced $41 billionin insured losses).

Mr. Hartwig challenged the notion that insurers were paying lessto consumers.

"Insurers are protecting more cars, homes and businesses thanany time in U.S. history, and have been an essential component ofthe country's economic growth engine for decades," he said.

"The insurance industry has paid out hundreds of billions ofdollars in insured losses over the past few years, and insuranceproceeds constituted the single largest source of critically-neededfunds contributing to the stabilization and recovery of the GulfCoast's economy after Hurricane Katrina. So to say claims payoutscontinue to drop is absurd," he concluded.

Franklin W. Nutter, president of the Reinsurance Association ofAmerica (RAA), focused on the CFA report's comment that "in recentyears, insurers have reduced their financial risk by the wise useof reinsurance".

The benchmark for this accurate observation, Mr. Nutterobserved, is that in contrast to the report's themes, reinsurershave made "extraordinary financial contributions in response to themost significant series of catastrophic events in U.S.history."

"Since 2000, reinsurers have paid roughly $20 billion for 9/11claims, $3 billion in claims for the 2004 hurricane season, and $27billion in claims for Hurricane Katrina, Rita and Wilma in 2005,"he said in a statement.

"Reinsurers did not make an underwriting profit in the U.S. forover 20 years, until 2006 and 2007, when no major hurricanes hitU.S. soil," he noted

Indeed, he added, "in 2001, reinsurers paid $1.40 in claims andexpenses for every dollar of premium," and $1.26 in 2005.

"It is curious," Mr. Nutter said, "that the CFA report wouldrecommend more state government reinsurance funds, like Florida's,yet soundly criticize government and taxpayer-backed subsidies forinsurers, upon which the Florida fund is based. What is the logicof more state taxpayer funded reinsurance to insurers in thecontext of criticizing insurer profits?"

Calls for "actuarially" sound state reinsurance, per the CFAreport, "defy experience and political logic," according to Mr.Nutter.

Pointing to broker reports for the Jan. 1 reinsurance renewalsthat highlight abundant reinsurance capacity for catastrophe risk,dropping rates and a "buyer's market," the CFA is correct about onething, he added--the reinsurance market wants to write catastropherisk.

Thus, he added, "encourage it, don't displace it with expandedtaxpayer subsidies to insurers through state reinsuranceprograms."