The property and causalty insurance cycle, understood by everyone except some (but not all) Republican lawmakers, continues to turn.
Insurance company profits are swelling and insurance price increases have come to a virtual halt. Last year premiums rose an average of one-half of one percent and net income increased 12%, despite record catastrophe losses. Surpluses (think “net worth”) in the industry now exceed $427 Billion. The average rate of return on surplus was 10.5%.
This article tells us that one expert predicts that premium growth will slow in 2006 and, in fact, may be less than the rate of inflation. Insurers will have cut prices to maintain premium volume, which will cause underwriting losses. Some degree of underwriting losses are ok (last year the companies paid loss and loss adjustment expenses of $100.90 for every $100 in premium) so long as the companies can earn a decent rate of return on their investments. If they don’t, however, they have to raise rates to maintain profitability. Of course, the companies then will blame those increases on GREEDY TRIAL LAWYERS.
Here is a report from the Insurance Information Insitute about the performance of the industry in 2005.