The 2007 Groundhog Survey, carried out by the Insurance Information Institute, suggested that due to relatively low catastrophe losses in 2006 and a strong performance in virtually all other major lines of property/casualty (P/C) insurance, the industry should achieve its best underwriting performance since 1936. Surveyed analysts expected the industry’s profitability to continue in 2007, although with a much smaller underwriting profit, and the trend of decreasing underwriting profits was expected to continue in 2008. The poll also revealed that analysts uniformly expected premium growth to become even more sluggish in 2007 and 2008.

According to the survey, analysts expected on average an increase in net written premiums of just 1.8% in 2007 and in 2008, compared with the 4.3% for 2006. The 1.8% expected premium growth would be the third slowest rate of growth for P/C insurers since 1998. Overall, the share of P/C insurance premiums relative to the overall economy is expected to shrink by about 3.1% in 2007.

III notes that profits (in dollar terms) and profitability (ROE) are rising due to a number of factors, including a fall in catastrophe losses in 2006, allowing insurers to restore their claims paying resources and to reinvest. An improved capital position also helps insurers meet the higher capital requirements imposed on them by ratings agencies in the wake of Hurricane Katrina, requiring them to demonstrate an ability to pay claims arising from more than one major catastrophe per year in order to maintain and improve financial strength ratings.

The combined ratio – the ratio of losses and expenses to premiums – for 2007 is projected to be 96.8, a deterioration from an estimated 93.2 in 2006, while the combined ratio for 2008 is forecast to be 98.7.

Property/Casualty Insurance Industry Income, 2001-2006

Source: iii.org, server.iii.org