Despite Record Earnings, Property/Casualty Insurance Industry's 1995 Rate of Return Trails Fortune 500's

June 20, 1996 / 2 min read

NEW YORK, June 19, 1996 — The property/casualty insurance industry achieved after-tax net income of $20.1 billion in 1995, but the industry's 8.2-percent return on average net worth still trailed the Fortune 500 companies' estimated 14.8 percent median return.

The property/casualty insurance industry's return on net worth in 1995 also significantly trailed the industry's own long-term average of 10.7 percent, according to a study issued today by Insurance Services Office, Inc. (ISO).

A $4.9-billion decrease in underwriting losses, and increases in realized capital gains and investment income were the main reasons the industry's profits increased $9.3 billion to $20.1 billion, according to the study, Insurer Financial Results: 1995.

Realized capital gains rose $4.1 billion to $5.8 billion and contributed 23 percent of insurers' pretax income.

Net investment income grew $2.5 billion, or 7.5 percent, to $36.2 billion — the largest percentage increase since 1989.

Reinsurers, despite greater premium growth, did not fare as well as primary insurers in 1995, says the report. Reinsurers' written premium grew 13 percent, compared with 3.3-percent growth for the industry as a whole, and reinsurers' investment results generally mirrored those of the industry. But reinsurers' profitability — as measured by their combined ratio — lagged that of the whole industry, which at 106.3 was its best combined ratio in seven years.

"The reinsurers' combined ratio of 109.9 was 3.6 percentage points higher than the industry's," said ISO Vice President John Kollar. "That difference was mainly attributable to reinsurers' beefing up their reserves for environmental and asbestos liability."

The industry as a whole carried environmental and asbestos liability reserves — including allocated loss-adjustment expenses — of $27 billion at year-end 1995.

The study also found that:

Despite slightly worse underwriting results, primary agency insurers have had higher rates of return than primary direct writers. From 1980 to 1995, direct writers averaged a return of 9.0 percent on statutory surplus and a combined ratio of 107.9, compared with agency writers' return of 9.8 percent and a combined ratio of 110.2.

Stock and mutual insurers had similar average combined ratios from 1980 to 1995, but mutual insurers had lower returns on average statutory surplus. The mutual insurers' averaged a return of 7.6 percent, compared with 10.5 percent for stock insurers. The difference in returns stems from stock insurers' having 20 percent more invested assets per dollar of surplus.

Release: Immediate

Contacts:
Giuseppe Barone / Erica Helton
MWW Group (for ISO)
201-507-9500
gbarone@mww.com / ehelton@mww.com