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Rising Profits May Spur Detrimental Actions, III Warns

The good news is the property/casualty insurance industry reported a 9.4 percent rate of return for 2003. The bad news is that increased profitability may...
April 20, 2004

The good news is the property/casualty insurance industry reported a 9.4 percent rate of return for 2003. The bad news is that increased profitability may be seized upon by industry critics to argue for actions that will ultimately hurt carriers and policyholders.  That's the essence of a commentary by the Insurance Information Institute published last week.

Property-casualty insurers' net income soared to $29.9 billion last year, almost 10 times the $3 billion recorded in 2002, while boosting statutory surplus by 21.6 percent. The combined ratio  improved to 100.1 last year from 107.3 in 2002.

"The return of profits to the p/c insurance industry also means that last year's results are likely to be misinterpreted, misconstrued and misused by the industry's critics and some regulators to make a wide array of spurious, actuarially unsupported and in some cases politically motivated arguments detrimental to insurers and ultimately policyholders," the report states. "In particular, some will seize upon the figures to suggest that insurers are making "excessive" profits, that rising profitability is a sign that rates are too high, that rate rollbacks should be considered, that tort reform is unnecessary and that the Terrorism Risk Insurance Act should not be reauthorized."

Regulators and others need to recognize that last year's 9.4 percent ROE comes on the heels of several of the worst years in the industry's history, the commentary advises. Many of the factors that gave rise to the insurance industry's dark period - the years from 1999-2002 - are still in place and threaten the economic well-being of insurers on a daily basis.  More

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