NU Online News Service

The U.S. property-casualty insurance industry saw net income increase 4.4 percent in the first nine months of 2007 as underwriting profits and investment returns withstood increasing competition, said A.M. Best Co. rating firm.

Oldwick, N.J.-based Best reported that insurers are on course to report only their third underwriting profit since 1978.

Net income was $49.8 billion, up from $47.7 billion, while underwriting income was $18.6 billion, compared with $23.8 billion for the same period a year ago, Best said.

Net investment income increased 2.6 percent to $40.5 billion. The industry's after-tax return on equity was 14.5 percent for the 12-month period ended Sept. 30, 2007, up from 14.3 percent for the preceding 12 months but down from 15 percent at year-end 2006, Best reported.

The rating firm found that deteriorating underwriting results cut into profitability as premium erosion squeezed margins across most lines of business. At the same time, light catastrophe losses and favorable prior-year reserve development offset growing competition.

Best said the nine-month combined ratio deteriorated to a still-profitable 93.8 from 91.7.

The firm noted that credit market conditions have challenged many financial services companies, but it found the U.S. property-casualty industry has been relatively unscathed by the subprime mortgage crisis.

Best said the industry's policyholder surplus grew $25.4 billion, or 5 percent, to $528.1 billion through the first nine months of 2007 from $502.7 billion at year-end 2006.

Underwriting results in personal lines, Best reported, have deteriorated amid increases in the loss and loss-adjustment expense and underwriting expense ratios.

Commercial lines were found to have maintained strong underwriting results, aided by "apparently prudent underwriting, favorable loss-cost trends, mild catastrophe losses and healthier balance sheets," Best added.