The U.S. property and casualty insurance industry's net income after taxes rose 29.1 percent to a record $30.9 billion in the first half of 2005, from $23.9 billion in first-half 2004, according to Insurance Services Office and the Property Casualty Insurers Association of America. At the same time, the insurers consolidated surplus, or statutory net worth, increased 4.7 percent to $412.5 billion by June 30, from $393.8 billion at the end of 2004.
"Insurers' underwriting results for first-half 2005 were truly remarkable," said John J. Kollar, ISO vice president for consulting and research. "At 92.7 percent, the combined ratio for first-half 2005 was the best first-half combined ratio since the start of quarterly records extending back to 1986."
Increases in net gains on underwriting and net investment income drove the growth in net income and surplus. Net gains on underwriting increased 43.5 percent to $13.2 billion in the first half of 2005, from $9.2 billion in the first half of 2004. During the same period, the combined ratio, a measure of losses and other underwriting expenses per dollar of premium, improved 1.5 percentage points to 92.7 percent, from 94.3 percent. Net investment income grew 32.7 percent to $25.3 billion in the first half of 2005, from $19 billion in the same period of the previous year.
Losses from Katrina and Rita will affect insurers profitability for 2005 as a whole, noted Kollar. "Using the actual tax rates and surplus as of June 30, each $10 billion in net losses from those hurricanes could reduce the industry's net income after taxes for full-year 2005 by $7.4 billion and cut its annual rate of return by two percentage points," he said.
With insured damages resulting from Katrina estimated at $34 billion and a further $2.5 billion to $7 billion in damages caused by Rita, the industry's rate of return for 2005 could fall by 7 or 8 percentage points if U.S. insurers were to shoulder the entire burden, the analysts predicted. Once it has been determined what proportion of the losses will be covered by foreign reinsurers and residual market mechanisms, a more accurate assessment of the financial ramifications of the 2005 hurricane season will be possible.
Overall loss and loss adjustment expenses increased 0.4 percent to $140.7 billion in the first half of 2005, compared to $140.2 for the first six months of 2004. During the same period, catastrophe losses fell 8.9 percent to $3.1 billion, from $3.4 billion, according to Property Claim Services. The $3.1 billion in catastrophe losses compares with an average of $4.5 billion in first-half catastrophe losses during the 10 years from 1995 to 2004. Non-catastrophe loss and loss adjustment expenses rose 0.6 percent to $137.6 billion in the first half of 2005, from $136.8 billion a year earlier.
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