But the insurance industry’s overall profitability as measured by its annualized rate of return on average policyholders’ surplus (or statutory net worth) slipped to 13.1 percent in first-half 2007 from 13.5 percent in first-half 2006 as underwriting results deteriorated. Net gains on underwriting fell 4.1 percent to $14.4 billion in first-half 2007 from $15 billion in first-half 2006. The combined ratio — a key measure of losses and other underwriting expenses per dollar of premium — worsened to 92.7 percent in the first half of this year from 92 percent in the first half of 2006, according to ISO and the Property Casualty Insurers Association of America (PCI).
The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers.
The deterioration in underwriting reflects weakness in premium growth as a result of escalating competition in insurance markets. Net written premiums grew $0.3 billion to $223.4 billion in first-half 2007 from $223.1 billion in first-half 2006, with written premium growth slowing to 0.1 percent in the first half of this year from 2.9 percent in the first half of last year. Net earned premiums rose $3.1 billion to $217.9 billion in first-half 2007 from $214.8 billion in first-half 2006, as earned premium growth slowed to 1.4 percent in the first half of 2007 from 2.6 percent in the first half of 2006.
“At 0.1 percent in first-half 2007, net written premium growth was the weakest for any first half in at least two decades. The previous record low for first-half premium growth was 1 percent in 1999, with first-half premium growth ranging as high as 13 percent in 1987,” said Michael R. Murray, ISO’s assistant vice president for financial analysis. “Market surveys and U.S. government data indicate that escalating competition and declines in the price of insurance are cutting into premium growth. According to the Council of Insurance Agents and Brokers’ second-quarter 2007 market survey, commercial premium rates declined 11.8 percent on average for all sizes of accounts. And the consumer price index (CPI) for motor vehicle insurance increased just 0.4 percent in first-half 2007 compared with its level a year earlier, even though the CPI for motor vehicle repairs rose 3.5 percent. Similarly, despite ongoing problems in some coastal property insurance markets exposed to hurricanes, the CPI for tenants’ and household insurance rose just 0.8 percent year to date through June, even though the CPI for repair of household items rose 4.5 percent.”
“Other evidence that escalating competitive pressures are cutting into premium growth includes the gap between premium growth and overall economic growth,” said Genio Staranczak, PCI chief economist. “In first-half 2007, net written premiums were up 0.1 percent from a year ago, while the nation’s gross domestic product [GDP], which takes into account both inflation and real growth, increased 4.6 percent during the same time frame. That premiums barely rose as GDP grew at a relatively healthy pace is an indication that intensifying competition is leading to lower prices for most coverages in most locations, though property insurance increases are evident in some coastal areas.”
Written premium growth failed to keep pace with increases in loss and loss adjustment expenses. Overall net loss and loss adjustment expenses (after reinsurance recoveries) increased $1.5 billion, or 1.1 percent, to $142