A.M. Best Special Report: P/C Industry Reports Record-Setting Underwriting Profit for 2006, Posts Lowest Combined Ratio Since 1948.

OLDWICK, N.J. -- A benign catastrophe season and continued underwriting discipline enabled the U.S. property/casualty industry to bounce back strongly in 2006 and report an underwriting profit of $31.2 billion. The solid 2006 results increased five fold from year-end 2005, when catastrophe fueled losses led to a $7.3 billion underwriting loss, this according to a special report from the A.M. Best Co.

Overall, the U.S. property/casualty industry's underwriting performance excelled in 2006 as its combined ratio improved to 92.4, its best performance since the 91.2 recorded 58 years earlier in 1948. In comparison, the U.S. property/casualty industry reported a combined ratio of 101.2 in 2005, which included approximately 8.0 percentage points associated with the year's record setting catastrophe losses.

The industry's net premiums written (NPW) continued to level off in 2006. The deceleration in premium growth was a direct result of across-the-board softening in the majority of personal and commercial lines markets, with the exception of hurricane exposed coastal property segments. Overall premium rate reductions, resulting from intense competition, were somewhat offset by the sharp rate increases in catastrophe prone areas, resulting in a modest 1.6% increase in NPW.

The U.S. property/casualty industry ended 2006 with record profits, making it the best year for a number of insurers in terms of operating performance. Overall, the industry's net income after taxes increased to a record $68.0 billion at year-end 2006, an increase of $20.3 billion, or 42%, from the previous record of $47.7 billion posted in 2005. Driven by solid operating results, the industry's policyholder surplus grew $57.2 billion, or 13.1%, to $494.8 billion in 2006 from $437.6 billion reported at year-end 2005.

According to ISO's Property Claim Services (PCS) unit, catastrophe losses were an estimated $8.8 billion for year-end 2006. In comparison, U.S. statutory companies reached record-breaking catastrophe losses estimated at $34.0 billion in 2005. Also, the industry's loss reserve position improved a great deal in 2006, recording $6.9 billion of favorable development on prior years' reserves compared to adverse prior year reserve development of $2.7 billion in 2005.

In the face of intensifying competition and softening market conditions, 2006 proved to be a challenging yet rewarding year for the U.S. property/casualty industry, as it recorded an underwriting profit for only the second time since 1978. Better-than-expected underwriting results; driven by a sharp decline in catastrophe losses, overall favorable loss reserve development and loss frequency trends; and solid investment returns helped propel the industry's net income to record levels and allowed insurers to recover from their hurricane losses of 2005. As a result, insurers were able to strengthen their capital position, which ultimately will provide added protection against the next mega-catastrophe.

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Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.