Do Democrats Threaten Insurer Profits?

One of the most fascinating takeaways from NU's Property-Casualty Executive Conference last week is the fact that contrary to conventional wisdom, the party controlling the White House has little or no effect on the industry's bottom-line profitability.

Indeed, for all those of you convinced that having Democrats running wild in Washington means the end of insurance industry profitability, take heart.

In fact, not only has the industry historically been just as profitable under Democratic administrations as they've been with Republicans controlling the government, but their most profitable year, believe it or not, came under President Jimmy Carter, with a return on equity of 16.4 percent!

That's the reassuring word from Bob Hartwig, president of the Insurance Information Institute, who pointed out in his presentation that between 1950 and 2008, the industry's average ROE has been 8.05 percent under Democrats and 8.02 percent under Republicans!

However, that doesn't mean profitability hasn't swung wildly not only between administrations, but even when comparing the first and second terms of the same President.

In Ronald Reagan's first term, the industry's ROE was 7.7 percent, but it jumped to 15.1 percent in his second term.

Under the current guy in charge, George W. Bush, ROE was a weak 4.83 percent in his first term, rising to 10.1 percent in his second term. (In case you are curious, his dad's administration produced an ROE for the industry of 8.4 percent.)

How can this be???

A lot of factors figuring into insurer profitability are beyond the realm of politics, Mr. Hartwig explained, citing the timing of catastrophes as just one example.

I figure on below-average returns for Barack Obama's first two years–what with exposure growth and investment returns down in a shrinking economy–but the total should rebound back into double-digits by 2011, when economic activity really starts to heat up again.

What do you folks think the industry's ROE will be under an Obama administration from 2009 through 2012???

(For a complete list of industry ROE from Truman through George W., see NU's Dec. 1 edition, on line next Monday at www.propertyandcasualtyinsurancenews.com.)