Property and casualty insurers saw their first-half net incomeclimb collectively by over 245 percent in 2012 compared to theprior year, as the industry benefited from premium growth and asharp drop in catastrophe losses, but experts offered mixedopinions on the larger meaning of the figures.

“While insurers' overall results for first-half 2012 arecertainly much better than their results for first-half 2011,insurers' overall rate of return remains subpar compared withlong-term historical norms, and insurers now need much betterunderwriting results just to be as profitable as they were in thepast,” says Michael R. Murray, ISO's assistant vice president forfinancial analysis.

ISO, the Property Casualty Insurers Association of America andthe Insurance Information Institute released figures on theindustry's first-half performance, finding that net income for theperiod was $16.4 billion, compared to $4.8 billion a year ago.

Net written premiums climbed 3.6 percent to $226.7 billion in2012's first half, while net underwriting losses eased from $24.1billion in 2011 to $7 billion this year.

The industry's combined ratio dropped to 102.2 compared to 110.5a year ago. But Murray says even though that figure is 1.8 pointsbetter than the industry's 104 average combined ratio over the last53 years, the benefits for the industry are questionable when thecombined ratio is put in perspective: “With investment yields,financial leverage, and tax rates like those in first-half 2012,ISO estimates that the combined ratio would have to improve almost5 percentage points to 97.4 percent in order for insurers to earntheir long-term average rate of return.”

The industry's annualized rate of return on averagepolicyholders' surplus for the first half was 5.9 percent, up from1.7 percent last year. But Murray says the average over the last 53years is 9 percent.

Other observers highlighted the positives for the industry, withRobert Gordon, PCI's senior vice president for policy developmentand research, pointing to the industry's $567.8 billion inpolicyholders' surplus as of June 30. “The $17.5 billion increasein policyholders' surplus…is a testament to the strength and safetyof insurers' commitment to policyholders,” he says. “Despitechallenging economic conditions, insurers are strong, wellcapitalized, and well prepared to pay future claims. Policyholdersand regulators can rely on the insurance industry to fulfill itsobligations when catastrophes strike.”

In a separate analysis of the ISO, PCI and I.I.I. figures,I.I.I. President Robert Hartwig says, “Fundamentally, the P&Cinsurance industry remains quite strong financially, with capitaladequacy ratios remaining high relative to long-term historicalaverages.”

He notes that net income after taxes had been reboundingsteadily after “plunging by 96 percent during the height of theglobal financial crisis” in 2008, until high cat losses took theirtoll in 2011.

“So far in 2012, however, Mother Nature has been much less crueland profits and profitability are once again rebounding as aresult,” he says.

Hartwig says cat losses during the third quarter were also“relatively benign,” and the stock market surged, both of whichshould benefit the industry, but he adds that “it is impossible tofully anticipate catastrophe loss activity and the investmentenvironment through year's end.

“Nevertheless, it is possible that the P&C insuranceindustry in 2012 could match or even surpass the post-crisis profitpeak of $35.2 billion reached in 2010.”