A.M. Best Special Report: P/C Industry Starts Strong in 2007 With First Quarter Underwriting Profit.

OLDWICK, N.J. -- The U.S. property/casualty industry followed record profits in 2006 with continued favorable trends in first quarter 2007, posting net income after taxes of $16.7 billion. An underwriting gain of $8.0 billion and net investment income of nearly $14 billion propelled the industry's strong operating results, according to a special report by A.M. Best Co.

As a result of the industry's strong operating performance, its after tax return on equity (return on surplus), which measures the industry's overall after tax profitability from underwriting and investment activity, was a healthy 14.0% for the 12 months ended March 31, 2007, up from 11.0% for the 12 months through March 31, 2006.

The U.S. property/casualty industry recorded a combined ratio of 92.4 in first quarter 2007, compared with 91.5 in the same period of 2006. Despite continued price softening across virtually all lines, the industry's strong underwriting results benefited from continued pricing adequacy, prudent underwriting practices and favorable prior year loss reserve development. The personal lines segment reported a combined ratio of 94.5, compared with 91.2 recorded in first quarter 2006. The commercial lines segment reported a combined ratio of 90.4, compared with 90.9 in first quarter 2006. The U.S. reinsurance segment experienced very strong underwriting results as evidenced by a reported combined ratio of 89.3, compared with 98.2 a year earlier.

While the industry sustained solid operating results, competition continues to intensify in virtually all personal and commercial lines as insurers pursue near-term growth targets and at least stable market share. Consequently, rates declined sharply in first quarter 2007, and the U.S. property/casualty industry's net premiums written (NPW) declined 1.3% to $111.8 billion for the quarter.

As a result of the industry's strong operating performance, its surplus position grew $4.8 billion, or 1.0%, to $506 billion through first quarter 2007 from $501.2 billion at year-end 2006. Furthermore, with the industry reporting record setting results in 2006, policyholder surplus grew 12.8% for the 12 months ended March 31, 2007.

With competition expected to continue intensifying in most property/casualty lines through 2007, premiums are expected to decline, and near-term underwriting results are likely to deteriorate. However, A.M. Best still expects the overall industry to turn another profit in 2007.

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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.