A.M. Best Special Report: U.S. P/C Industry Records Strong Results - But for How Long?

OLDWICK, N.J. -- Strong underwriting results and favorable investment returns are expected to generate 2007 net income of $59.2 billion for the U.S. property/casualty industry. Despite continued price softening across most commercial and personal lines, the industry should record an underwriting profit of $19.3 billion for 2007, given sustained underwriting discipline. While soft market conditions and increased competition will persist in 2008, A.M. Best Co. forecasts continued profitability fueled by solid investment income and diminishing underwriting profits.

* A.M. Best estimates net premiums written declined 1.2% in 2007 amid soft market conditions, the first such decline since 1943.

* Policyholder surplus grew for the fifth straight year, driven by strong earnings and capital gains that outpaced premium growth.

* Underwriting results benefited from still-favorable underwriting conditions, improved loss-frequency trends, a high level of reserve releases and lower-than-expected catastrophe losses.

* Net investment income continued to bolster the industry's results with an estimate of $54.9 billion in 2007, on par with 2006, driven by positive operating cash flow and higher invested assets.

* The commercial lines segment saw a second straight year of underwriting profits, aided by favorable loss-reserve development and focus on price monitoring and enterprise risk management.

* Despite deteriorating loss-cost trends, the personal lines segment continued to report solid earnings due in part to increased attention on price segmentation, product differentiation and cycle management.

* Reinsurers await reduced profit margins as a result of top-line pressure in the competitive marketplace, higher catastrophes and the possibility of an economic downturn.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.