The stars were aligned for the U.S. property-casualty insurance market in 2006, as the industry reported record profitability for the third consecutive year. While much attention centered on the modest natural catastrophe losses experienced in 2006 relative to the previous two years, the market's 2006 operating performance is also a function of several other important factors--including continued favorable insurance pricing across a large segment of the industry and recent improvements in insurers' loss-reserve position.
Questions linger regarding the sustainability of this level of performance, given the market's highly competitive nature and historical volatility.
The market is now at a cyclical operating peak. Profitability is expected to decline going forward but remain favorable relative to historical norms at least for 2007, with returns on capital more likely to fall below required levels in 2008.
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