Property-casualty insurers reported an awesome year for 2006, with the industry-wide combined ratio coming in at a stellar 92.4 (the best result since at least 1959), fueling a 44 percent jump in net income to $63.7 billion. Normally, that would be good news, but carriers are doomed to take a hammering from critics for making too much money! Are insurers price-gouging the public? That's the question industry leaders will face.
(To read Managing Editor Susanne Sclafane's news story about industry-wide results, click here.)
In an interview with Su, she recorded some interesting comments from Michael R. Murray, assistant vice president for financial analysis at the Insurance Services Office, who challenged the conventional wisdom that a lack of catastrophes compared to the record losses of 2004 and 2005 was the factor driving profits higher. Indeed, he said, 2006 was mischaracterized as a mild year for cat losses, when in fact it was average.
He cited other factors, including declining auto frequency trends, loss reserve releases, federal class-action reforms, and state tort reforms.
He added that the fruits of the prior hard market were being harvested, suggesting, Su noted, that favorable trends all converged in a Goldilocks fashion in 2006, making everything just right for insurers last year. More often than not in the insurance industry, everything breaks wrong. Once in a while, we catch a break, he said.
However, he had a warning for those who think insurers have taken up permanent residence on Easy Street. Indeed, insurers abhor making a profit, he said, noting that falling prices in many lines are already undermining future profitability.
What do you folks think? Can the industry explain away its massive profits this year with a straight face? Will anyone care that the industry hardly ever makes a profit, and that one bad storm season could turn everything upside down?
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