NU Online News Service

WASHINGTON --Consumer Federation of America said theproperty-casualty insurance industry dramatically increased profitsand surplus in recent years, in part by "systematicallyovercharging for insurance and shifting costs to consumers andtaxpayers."

The organization's report was immediately attacked by theinsurance industry as misleading.

According to CFA's study, based on "extensive data," p-cinsurers are paying out lower claims in relationship to thepremiums they charge consumers than at any time in decades.

It said the combined ratio appears to be the lowest on record in50 years. "This indicates the highest profit levels in recenthistory."

CFA said that using a number of common measures of financialhealth, the study found that balance sheets for p-c insurers "arein better condition overall than in almost any time in recenthistory."

J. Robert Hunter, director of insurance for CFA, said, "Profitsand a solid insurance industry are a good thing, but unjustifiedprofits and excessive capitalization harm consumers."

Mr. Hunter, who wrote the study, said it estimates thatafter-tax returns for insurers for 2006 are $60 billion. Profitsfor the record years of 2004, 2005 and 2006 are estimated to be$149.2 billion.

The loss and loss adjustment expense ratio for 2006 is estimatedto be 68.3 percent, the lowest in 27 years. The years 2003 through2006 represent four of the six lowest loss and LAE ratios in thelast 27 years, Mr. Hunter said his data indicates.

"Representatives of the insurance industry often claim that highpremiums and profits are necessary to compensate for the high risksthey bear," he said. In fact, he added, "insurance is a low-riskinvestment."

Mr. Hunter said using standard measures of stock marketperformance that assess financial safety and stock price stability,the p-c industry represents "a below-average risk compared to allstocks in the market, safer than investing in a diversified mutualfund."

Regarding specific companies, the report said:

o American International Group's loss ratio for 2006 for ninemonths is 50.9 percent, the lowest since at least 1987. That meansthat AIG "is barely paying half of the premiums it receives inbenefits."

o Allstate Insurance Group's loss ratio in 2006 for nine monthsis 43.5 percent, the lowest since at least 1987. CFA called thisinformation "shocking given Allstate's moves to nonrenew policiesfor tens of thousands of consumers in coastal states from Maine toTexas, especially in Florida, Mississippi and Louisiana."

o St. Paul Travelers Group's loss ratio in 2006 for nine monthsis 46.8 percent, the lowest since at least 1987.

o Berkshire Hathaway Insurance Group's loss ratio in 2006 fornine months is 56.1 percent, the lowest since at least 1987.

o Progressive Insurance Group's loss ratio in 2006 for ninemonths is 53.1 percent. Since 1987, Progressive had a loss ratiolower than this only once, in 2004, at 51.9 percent.

o Hartford Insurance Group's loss ratio in 2006 for nine monthsis 53.2 percent, the lowest since at least 1987. The 2006 lossratio is more than 10 points below the long-term average.

"By any measure, 2006 profits are excessive," the report said."The astonishingly low loss ratio report above means that consumersare receiving record low payouts for their premium dollars asinsurers reap unprecedented profits."

In responding to the report, the Insurance Information Institutesaid insurers were fixing "the roof while the sun was shining." Theorganization estimated that property-casualty insurers boosted by$55.7 billion its cumulative claims paying resources in 2006, anumber equal to 93 percent of the $59.8 billion in expected netincome.

The $55.7 billion figure was a near record, second only to the$62 billion increase in 2003 as insurers worked to recover from theSeptember 11, 2001 terrorist attacks," the I.I.I. said.

Robert P. Hartwig, I.I.I. president and chief economist, saidthe industry had reinvested billions of dollars in 2006, allowingclaims-paying resources to reach an all-time record high estimatedat $481.5 billion.

"This reinvestment by the industry comes at a critical time forinsurers and consumers alike," Mr. Hartwig said. "The industry isbolstering its capital position in advance of what is alreadypredicted to be a 2007 hurricane season that is 40 percent aboveaverage." Insurers paid out more than $80 billion in insured lossesduring the 2004 and 2005 hurricane seasons, he said.

The American Insurance Association also responded to CFA, notingthat "insurance company profits are essential to providinginsurance coverage relied upon daily by American families andbusinesses."

Marc Racicot, president of the AIA, called the CFA "allegations"an "unfounded attack on individual p-c insurance companies, as wellas the industry in general."

Mr. Racicot said, "Last year was a fortunate anomaly given thatin virtually every year over the past two decades, insurers lostmoney on their core business operations." He added, "Fortunatelyfor all Americans, the p-c industry had a much better yearfinancially in 2006 than in 2005 or 2004, when we saw record lossesfrom natural disasters."

The Property Casualty Insurers Association of America had asimilar reaction. "Consumers are among the primary beneficiaries ofa financially strong insurance industry," said Genio Staranczak,PCI chief economist.

"Profits allow insurers to reinvest in the business so thatthere is sufficient capital available to pay claims when a majorcatastrophe occurs," Mr. Staranczak noted.