Profitability

Profitability

According to an analysis conducted by ISO, profitability of property/casualty (P/C) insurance companies measured on a generally accepted accounting principles (GAAP) accounting basis lags other industries. The return on net worth for Fortune 500 combined companies for the years 2004 to 2013 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 2013 was 9.0 percent, up from 5.3 percent in 2012.

 

ANNUAL RATE OF RETURN: NET INCOME AFTER TAXES AS A PERCENT OF EQUITY, 2004-2013

 

  Property/casualty (1) Life/health Selected other industries (2)  
Year Statutory
accounting (3)
GAAP
accounting (4)
Life/health
insurance (5)
Healthcare
insurance (6)
Diversified
financial (7)
Commercial
banks
Electric and
gas utilities
Fortune 500
combined
industrials
and service (8)
2004 10.4% 9.4% 11.0% NA 15.0% 15.5% 10.5% 13.9%
2005 10.8 9.6 13.0 16.2% 15.0 16.0 10.0 14.9
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 10.3 9.0 7.0 13.0 18.0 9.0 9.0 13.7

(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® company; Fortune.

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PROFITABILITY OF INSURERS IN THE FORTUNE 500

The chart below shows insurance industry profitability on a GAAP accounting basis for insurers featured in the Fortune 500.

ANNUAL RATE OF RETURN, GAAP ACCOUNTING, PROPERTY/CASUALTY, LIFE/HEALTH AND HEALTHCARE INSURANCE, 2007-2011 (1)

  Property/casualty Life/health Healthcare insurance (2)
Year Stock Mutual Stock Mutual  
2007 14.0% 9.0% 11.0% 10.0% 19.0%
2008 3.0 1.5 9.0 -8.0 11.0
2009 7.0 3.5 7.0 0.0 14.0
2010 9.0 3.5 8.0 5.0 12.0
2011 6.0 NA 8.0 8.0 15.0

(1) Based on return on shareholders equity of insurance companies in the Fortune 500.
(2) Healthcare insurance and managed care.

NA=Data not available.

Source: Fortune.

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