Friday, April 20, 2007

Insurance Profits soar in 2006

"Don't let your insurance company tell you that the rates are rising to make up for losses insurance companies are having." Okay, it's not that simple. But insurance companies actually enjoyed a great year in 2006, in part due to the weather, and in part due to stricter business practices. C-PORT members have done their part by adopting better risk management proceedures and reducing losses in our industry.

Here is an detailed press release from ISO, a leading insurance risk and data base company.


JERSEY CITY, N.J., April 18, 2007 — Driven by a sharp decline in catastrophe losses from hurricanes and other natural disasters in 2006, the U.S. property/casualty industry posted a $31.2 billion net gain on underwriting for the year. The net gain on underwriting in 2006 stands in stark contrast to the $5.6 billion net loss on underwriting in 2005. The industry’s positive underwriting results contributed to an increase in its net income after taxes to $63.7 billion in 2006 from $44.2 billion in 2005. Reflecting the increase in net income after taxes, the industry’s rate of return on average policyholders’ surplus (net worth) rose to 4 percent in 2006 from 10.8 percent in 2005, according to ISO and the Property casualty Insurers Association of America (PCI).

Not the most exciting reading, but there is some very interesting numbers. For instance, " ...declines in investment yields have eaten into insurers’ ability to use investment income to support underwriting operations...", which is a reminder that insurance companies make money primarily by investing, not by collecting premiums and paying claims. The stock market can affect the insurance industry more than a hurricane.

Insurers’ overall profitability as measured by their statutory rate of return on average surplus — net income after taxes divided by average surplus during the year the income was earned — climbed to 14 percent in 2006 from 10.8 percent in 2005. The rate of return for 2006 was the highest since 1986...

One final point; spend a minute looking at the entire article. You don't have to read it all, but look at what is there: a detailed presentation of financial data about the insurance industry as a whole. Comparisons, percentages, profits and losses--and with short explainations of how those numbers effect the big picture. Have you figured out how much your net profit rose last year over the year before? What is your average return on investments?