A.M. Best Special Report: Underwriting Income Spurs Strong Nine Month U.S. Property/Casualty Operating Results.

OLDWICK, N.J. -- The U.S. property/casualty industry reported very strong operating results in the first nine months of 2006, propelled by underwriting income of $23.7 billion. Despite an increasingly competitive marketplace, the industry posted record results through the third quarter of 2006 due to a combination of lower catastrophe losses, continued adherence to underwriting discipline and favorable prior-year reserve development and loss frequency trends, according to a special report by A.M. Best Co.

The industry's exceptional results illustrate the dramatic turnaround from the same period in 2005, when catastrophe-fueled losses led to a $2.8 billion underwriting loss.

The U.S. property/casualty industry's overall underwriting performance continued to excel, as the combined ratio improved to 91.9 in the nine-month period ended September 30, 2006, down 8.1 percentage points from 100.0 reported in the same period of 2005. With the U.S. property/casualty industry reporting impressive underwriting results through the third quarter of 2006, the industry currently is on pace for its best underwriting performance since 1953, when it posted a 93.1 combined ratio.

Net income for the nine months ended September 30, 2006, soared from a year earlier to $50.4 billion, an increase of 61% from the same period of 2005, when claims from hurricane losses weighed heavily on results.

As a result of its strong operating performance, the U.S. property/casualty industry's policyholder surplus grew $38.3 billion, or 8.7%, to $477.3 billion through the first nine months of 2006 from $438.9 billion recorded at year-end 2005. Furthermore, despite the significant catastrophe losses recorded in the fourth quarter of 2005, policyholder surplus grew 12.8% for the 12-month period ended September 30, 2006.

The industry's after-tax return on equity increased to 15.1% for the 12-month period ended Sept. 30, 2006, up 4.2 points from 10.9% reported for the same period of 2005.

For the first nine months of 2006, net premiums written for the industry reached $345.1 billion, a 4.3% increase over the same period in 2005. In addition, net premiums earned increased 4.1% to $332.4 billion.

The 2006 Atlantic hurricane season officially came to a close on November 30, 2006, without a single hurricane hitting the U.S. mainland--a sharp contrast to the record-breaking 2005 season that produced an unprecedented amount of catastrophe losses.

According to ISO's Property Claim Services unit, third-quarter 2006 total catastrophe losses were approximately $971 million, the third-lowest total among third quarters in the past 10 years. In comparison, U.S. statutory filers recorded catastrophe losses of $26.4 billion in 2005's third quarter, which included the impact of hurricanes Katrina and Rita. For the nine-month period ended September 30, 2006, total estimated insured catastrophe losses reported were approximately $6.4 billion.

The 2006 Atlantic hurricane season turned out to be below normal in terms of frequency and well short of seasonal forecasts. In 2006, a strong Saharan Air Layer and an El Nino trend in the Pacific Ocean held hurricane activity in the Atlantic basin to only nine named storms, five hurricanes and two major hurricanes. In sharp contrast, the 2005 Atlantic hurricane season was the busiest on record, with 28 storms and 15 hurricanes, seven of which were considered major, including Katrina, Rita and Wilma.

With three quarters down and one to go, the U.S. property/casualty industry is on target for only its second underwriting profit since 1978. In addition, A.M. Best believes the industry is currently on track to post its best combined ratio in more than 50 years.

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A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.