Profitability

Profitability of property/casualty (P/C) insurance companies using generally accepted accounting principles (GAAP) lags other industries. The median return on shareholders’ equity for the Fortune 500 Combined Industrial and Service Businesses for the years 2005 to 2014 exceeded that of the P/C industry in every year. Insurers are required to use statutory accounting principles (SAP), which are more conservative than GAAP, when filing annual financial reports with state regulators and the Internal Revenue Service. Insurers outside the United States use standards that differ from SAP and GAAP. Some insurers support a move toward uniform global standards. The P/C industry’s GAAP rate of return in 2014 was 7.5 percent, down from 8.9 percent in 2013.

 

Annual Rate Of Return: Net Income After Taxes As A Percent Of Equity, 2006-2015

 

  Property/casualty (1) Life/health Selected other industries (2)  
Year Statutory
accounting (3)
GAAP
accounting (4)
Life/health
insurance (5)
Health care
insurance (6)
Diversified
financial (7)
Commercial
banks
Electric and
gas utilities
Fortune 500
combined
industrials
and service (8)
2006 14.4% 12.7% 12.0% 19.0% 15.0% 15.0% 11.0% 15.4%
2007 12.4 10.9 11.0 19.0 -1.0 11.0 11.0 15.2
2008 0.6 0.1 1.0 11.0 8.0 3.0 13.0 13.1
2009 5.9 5.0 4.0 14.0 9.0 4.0 9.0 10.5
2010 6.6 5.6 7.0 12.0 10.0 8.0 10.0 12.7
2011 3.5 3.0 8.0 15.0 12.0 8.0 10.0 14.5
2012 6.1 5.3 7.0 12.0 18.0 9.0 8.0 15.0
2013 10.2 8.9 7.0 13.0 18.0 9.0 9.0 13.7
2014 8.4 7.5 9.0 12.0 22.0 9.0 10.0 14.2
2015 NA NA 8.0 12.0 22.0 8.0 9.0 13.3

(1) Excludes state funds for workers compensation and other residual market carriers.
(2) Return on equity on a GAAP accounting basis, Fortune.
(3) Statutory net income after taxes, divided by the average of current and prior year-end policyholders’ surplus. Calculated by ISO. Statutory accounting is used by insurers when preparing the Annual Statements they submit to regulators.
(4) Estimated from statutory data. Equals GAAP net income divided by the average of current and prior-year-end GAAP net worth. Calculated by ISO.
(5) Return on equity on a GAAP accounting basis, Fortune. Combined stock and mutual companies, calculated by the Insurance Information Institute.
(6) Healthcare insurance and managed care.
(7) Companies whose major source of revenue comes from providing diversified financial services. These companies are not
specifically chartered as insurance companies, banks or savings institutions, or brokerage or securities companies, but they may earn revenue from these sources.
(8) Fortune 500 Combined Industrial and Service Businesses median return on shareholders' equity.

NA=Data not available.

Source: ISO®, a Verisk Analytics® business; Fortune.

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