Industry Net Income Rose 20 Percent In 2005

The U.S. property-casualty industry absorbed record-high catastrophe losses in 2005 to post a 20 percent increase in after-tax net income from the previous year, according to a new report from A.M. Best.

The p-c industry earned after-tax net income of $48.4 billion, compared with $40.5 billion in 2004.

The industry's noteworthy operating results were driven by solid investment returns, along with prudent underwriting practices and sound risk management implemented throughout the industry, Best said.

Although an underwriting loss was reported, investment income–driven by growth in the invested asset base and strong cash flows–offset the red ink to generate profitable operating returns for year-end 2005.

Net investment income for the year rose 23 percent to $50.8 billion–far superior to the 1.3 percent growth reported in 2003.

The industry posted a 7.8 percent surplus gain last year–down from the 13.6 percent comparable figure in 2004. Net premium written growth leveled off considerably last year, showing a .7 percent increase, while net premium earned also remained virtually flat.

A surplus growth figure that outpaced net premium written growth indicated softening market conditions for the year.

Catastrophe losses added an estimated eight points to the 2005 combined ratio of 100.7, which rose from 2004's 98.1–the first such figure to fall under the magic 100 benchmark since 1978.

“These results can be attributed to rate softening as well as additional premium being ceded to offshore insurers,” the report stated.

Loss reserve development was a mixed bag in 2005, with commercial lines reporting an estimated $4.8 billion in the negative column, while personal lines writers posted $3.4 billion of favorable development.