U.S. property-casualty insurers increased earnings 11.7 percent and added to their capital base in 2005, despite record catastrophe losses, according to data from the Insurance Services Office and the Property Casualty Insurers Association of America.
The insurance industry's net income after taxes rose $4.5 billion, to $43 billion in 2005 from $38.5 billion in 2004.
Reflecting the industry's income, its consolidated surplus increased 9.2 percent, or $35.8 billion, to $427.1 billion at year-end 2005. This compares to the $391.3 billion at year-end 2004.
Net income and surplus increased even though direct insured property losses due to catastrophes rose in 2005 to a record $57.7 billion–more than double the comparable 2004 figure of $27.5 billion, according to ISO's Property Claim Services (PCS) unit.
Figures for catastrophe losses exclude those covered by the National Flood Insurance Program.
Robert Hartwig, chief economist for the Insurance Information Institute, issued a cautionary note pointing out that the industry's profitability came in well below the 14.9 percent return for the Fortune 500 group of companies last year.
"Contrary to some media reports, the property-casualty insurance industry did not even come close to experiencing record profitability in 2005," Mr. Hartwig said.
The industry's increasing underwriting savvy could be seen in the 92.7 combined ratio for the first six months of the year, which Mr. Hartwig noted declined 23 points from the comparable figure in 2001.
"The improvement in underwriting over the past several years is the result of a painful but necessary across-the-board effort by insurers to reassess risk," he said.
Countrywide data for all lines often mask significant problems in specific markets and locations, said Michael R. Murray, ISO assistant vice president for financial analysis.
As an example, before reinsurance recoveries and excluding losses covered by residual market mechanisms, the hurricanes of 2005 caused $24.7 billion in insured losses to residential and commercial property in Louisiana.
"This is $3.1 billion more than all the premiums insurers charged for property insurance in the state during the 23 years from 1982 to 2004," Mr. Murray said.
As for the 2005 fourth quarter, the industry's consolidated net income after taxes amounted to $14.1 billion, up $2.5 billion from $11.6 billion in the same 2004 period.
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