A very good year

The news today from the Insurance Services Office Inc. and the Property Casualty Insurers Assn. of America was decidedly good, though hardly surprising.

Driven by a combination of fears of a repeat of the catastrophe losses of 2005 and what in fact proved to be a relatively tame year natural catastrophe-wise, the U.S. property/casualty insurance industry posted sizable profits in 2006.

Jersey City, N.J.-based ISO and the Des Plaines, Ill.-based PCI reported that the U.S. P/C industry posted a $31.2 billion underwriting profit in 2006, a considerable improvement on its $5.6 billion net underwriting loss in 2005, with the industry’s combined ratio improving to 92.4% in 2006 from 100.9% in 2005.

That underwriting profit contributed to overall profits of $63.7 billion last year, a 44% increase from the U.S. property/casualty industry’s $44.2 billion profit in 2005.

Undoubtedly, the fact that last year’s direct insured losses from catastrophes in the U.S. dropped to $9.2 billion from $61.9 billion in 2005 was a significant factor in the industry’s 2006 results. In a statement, though, Geno Staranczak, PCI’s chief economist, noted that the industry–and the country–can’t let last year’s breather allow them to become complacent to the possibility of extreme cat losses.

“While meteorological anomalies confounded the experts and helped the U.S. escape major hurricane strikes in 2006, the threat of more frequent and severe storms, combined with the growing population and the increased value of property in the highest risk areas of the country, means that the threat of enormous losses from natural disasters is a financial problem the nation must deal with,” Mr. Staranczak said.

“Experts are now predicting that the 2007 hurricane season will be far worse than average, and huge parts of the U.S. remain vulnerable to earthquakes that can strike at any time,” the PCI economist continued. “Bottom line, natural catastrophes pose a huge and growing threat to consumers and businesses across the country.”

The question now is whether the industry can maintain its high level of profitability, even without an uptick in cat losses. ISO and the PCI noted there are already signs that insurers’ strong 2006 is leading to price cuts in many markets.

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