The property-casualty insurance industry will report $43.5billion in net profits for 2005, a group of industry organizationssaid today.

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Preliminary 2005 results provided by the Property CasualtyInsurers Association of America and the Insurance Services Officealso indicate the industry will post a modest underwriting loss,compared with the previous year when the first underwriting gainwas posted in 24 years.

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But even with that loss, the industry increased its profits by12 percent when compared to the $38.5 billion gained in 2004.

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Insurers achieved these results despite catastrophe lossestotaling a record $57.7 billion before reinsurance recoveries,according to ISO's Property Claims Services unit.

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"U.S. insurers entered 2005 well capitalized and well preparedfor major catastrophic losses, having implemented effective riskmanagement strategies which helped insurers better manage lossesand control costs," said Robert Hartwig, chief economist for theInsurance Information Institute.

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Additionally, insurers' investments benefited from higherinterest rates and a resurgent economy in 2005, he added.

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"That being said, the $43.2 billion earned by property-casualtyinsurers in 2005 translates into a 10.1 percent return on surplusor net worth, well below the 14.9 percent return on equity earnedby the Fortune 500 group of companies," Mr. Hartwig said.

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Gregory Heidrich, senior vice president, policy development andresearch for PCI, cautioned that last year's catastrophe losseshave had a significant effect on reinsurers and reinsurance marketsthat is likely to be felt by primary insurers. Catastrophe coveragein regions prone to natural disasters such as hurricanes andearthquakes will be most impacted.

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"One major broker reported last month that at least five Bermudareinsurers had either stopped underwriting or re-oriented theirbusiness since Hurricane Katrina," Mr. Heidrich said.

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So despite the sizable increase in profits, challenges remain,the groups said.

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"While the U.S. property-casualty industry's overall results for2005 contain a number of positives, those countrywide numbers masksignificant problems in specific markets and locations," saidMichael R. Murray, ISO assistant vice president for financialanalysis.

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As an example, Mr. Murray cited the $24.7 billion in insuredlosses on residential and commercial property in Louisiana incurredin 2005.

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Although that figure was before reinsurance recoveries andexcluded losses covered by the residual market, it was still $3billion more than all the premiums insurers charged for propertyinsurance in the state from 1982 to 2004, he noted.

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