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U.S. property/casualty industry posts higher 2012 net income: Analysis

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U.S. property/casualty industry posts higher 2012 net income: Analysis

Spurred by improved underwriting results, the U.S. property/casualty sector saw a 72.3% rise in net income in 2012, according to a joint study released Thursday.

The data shows that, despite Superstorm Sandy and waning investment income, U.S. property/casualty insurers' net income was $33.5 billion in 2012 compared with $19.5 billion in 2011, according to the Insurance Services Office Inc. and the Property Casualty Insurers Association of America.

The industry's improved performance was apparent as its combined ratio improved to 103.2% in 2012 vs. 108.1% in 2011.

The report said the improved underwriting results are attributable to premium growth and a drop in net losses and loss adjustment expenses, which were partially driven by a decline in catastrophe losses. ISO estimates that insurers' net loss adjustment expenses from catastrophes fell to $32.1 billion in 2012 from $38 billion in 2011.

“Much of the improvement in underwriting results last year reflects improvement in the underlying fundamentals of the property/casualty business as opposed to lower weather-related catastrophe losses,” Robert Gordon, PCI's senior vice president for policy development and research, said in a statement.

“The drop in net LLAE from catastrophes accounts for just $5.9 billion of the $19.6 billion decline in net losses on underwriting. Even if net LLAE from catastrophes had remained flat, the combined ratio would have improved by 3.6 percentage points to 104.6% in 2012,” he said.

Despite the improved underwriting, the industry continues to be challenged by declining investment income, as insurers' net investment income fell 3% to $47.7 billion in 2012 from $49.2 billion in 2011. The ISO estimates the U.S. property/casualty industry's combined ratio would have to improve by an additional 4.6 percentage points to 98.6% for insurers to earn their long-term average rate of return.

“As good as insurers' results for 2012 were compared with their results for 2011, they pale in comparison with long-term norms,” Michael R. Murray, ISO assistant vice president for financial analysis, said in a statement.

“For example, insurers' 5.9% overall rate of return for 2012 fell far short of their 8.9% average rate of return for the 54 years from the start of ISO's annual data in 1959 to 2012,” he said.

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