Industry Surveys

Insurance: Property-Casualty

January 24, 2008

Catherine A. Seifert CURRENT ENVIRONMENT..................................................................1

Solid profits in 2007 could portend softer pricing in 2008
Property & Casualty First-half 2007 underwriting results point to a profitable year
Insurance Analyst Surplus also rises
Monoline insurers expected to bear the brunt of insurers’ subprime pain

INDUSTRY PROFILE...............................................................................6
Top companies control the lion’s share of premiums
INDUSTRY TRENDS .................................................................................6
Significantly lower catastrophe losses aided underwriting results in 2006
Getting a handle on asbestos claims
Insurers reexamine catastrophe risks, concede impact of climate change
Haggling over TRIA
Investigations lead to changes in business practices, high-profile trial
M&A update
HOW THE INDUSTRY OPERATES .............................................................14
The money flows in...
Contacts:
...and the money flows out
Keep the cash circulating
Inquiries & Loss reserves: the financial buffer
Client Support Surplus funds: capital counts
800.523.4534 Forms of ownership
clientsupport@ Lines of coverage
standardandpoors.com Distribution: getting policies to the people
Regulation and competition hold insurers in line
Sales KEY INDUSTRY RATIOS AND STATISTICS ...................................................22
800.221.5277 HOW TO ANALYZE A PROPERTY-CASUALTY INSURANCE COMPANY .............23
Pricing moves inversely with interest rates
roger_walsh@
Predicting profits
standardandpoors.com
Cash flow and liquidity
Looking at leverage
Media
Michael Privitera GLOSSARY .............................................................................................27
212.438.6679
michael_privitera@ INDUSTRY REFERENCES.....................................................................29
standardandpoors.com
COMPARATIVE COMPANY ANALYSIS .............................................31
Replacement copies
800.852.1641
THIS ISSUE REPLACES THE ONE DATED JULY 26, 2007.
THE NEXT UPDATE OF THIS SURVEY IS SCHEDULED FOR JULY 2008.
Standard & Poor’s Industry Surveys
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Associate Editor: Diane Cappadona
Statistician: Sally Kathryn Nuttall
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VOLUME 176, NO. 4, SECTION 2

THIS ISSUE OF INDUSTRY SURVEYS INCLUDES 3 SECTIONS.
 C URRENT E NVIRONMENT
Solid profits in 2007 could portend
softer pricing in 2008
Thanks to another benign hurricane season,
most property-casualty insurers will likely
post an underwriting profit in 2007. This
follows a sharp turnaround in profitability
that the industry enjoyed in 2006 due to
much lower catastrophe losses. Partly offset-
ting the positive impact from lower catastro-
phe losses was deterioration in claim trends
in certain core lines of business, including
personal auto. Nevertheless, some favorable
prior-year loss developments in a number of
commercial lines of coverage helped cushion
that blow for a number of carriers.
However, some segments of the insurance
market face a challenging environment as
they enter 2008. Underwriting trends and
capital adequacy concerns that erupted in the
aftermath of the subprime mortgage debacle
led to a sell-off in the shares of financial
guaranty insurers, who provide AAA credit
enhancement to many structured credit prod-
ucts linked to mortgages (many of which
were subprime). Many of these insurers are
now scrambling to bolster their capital bases
and preserve their much-needed AAA finan-
cial strength ratings. Standard & Poor’s be-
lieves the overall property-casualty insurance
market will not experience a material, ad-
verse impact from the subprime mortgage
UNDERWRITING PROFITS
(In billions of dollars)
80
60
40
20
0
* *
(20)
(40)
1987 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 2006
*1987=-0.3; 1988=-0.38
Source: Standard & Poor’s Ratings Services.
crisis, though there are some pockets of
weakness within the financial guarantee seg-
ment of the market. Commercial lines insur-
ers who underwrote directors and officers’
liability for financial institutions may face
claims related to the mortgage meltdown,
however.
Most insurers posted solid investment re-
sults in 2006 and into the first half of 2007,
bolstering their bottom-line profits. Year-to-
year comparisons could become more diffi-
cult in 2008, however, amid turmoil in the
mortgage-backed securities markets and eq-
uity markets. Most insurers’ asset allocation
strategies are heavily weighted toward high-
grade corporate debt, which should insulate
them from much of the downturn in these
other areas of the market.
Still, the likelihood that the property-
casualty insurance industry is in the midst of
a soft patch or a “down market” was not
lost on investors, who also shunned the
shares of most financial services companies
amid concerns over turmoil in the credit
markets. As of December 31, 2007, the S&P
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
Property-Casualty Index had declined 15.8%
for the year, and the index for the overall Fi-
nancials sector was down 20.7%; the S&P
500 Stock Index, in contrast, advanced 3.5%
during that period.
First-half 2007 underwriting results
point to a profitable year
The latest available aggregate industry op-
erating results, released in October 2007 by
the Insurance Services Office (ISO), an insur-
ance research and data collection organiza-
tion, point to underwriting results marked by
slowing top-line growth, but improved prof-
itability despite some mixed underwriting
trends.
For the six months ended June 30, 2007,
insurers in the ISO study reported a fraction-
al rise in net written premiums to $223.4 bil-
1
 PROPERTY-CASUALTY OPERATING RESULTS
Earned premiums for insurers in the ISO
(In millions of dollars) study advanced 1.4% to $217.9 billion for
NET NET PRETAX
the first six months of 2007, up from $214.8
YEAR
UNDERWRITING
GAIN (LOSS)
INVESTMENT
INCOME
OPERATING
INCOME
billion in the comparable period in 2006.
*2007 14,402 24,505 39,070 This rate of growth represented a marked
*2006 15,021 25,396 39,686 slowdown from the 4.3% premium growth
R2006 31,115 52,309 84,607 the industry recorded in 2006. The last time
2005 (5,612) 49,729 45,145 the industry recorded a double-digit rise in
2004 4,263 39,966 43,963 premiums was in the “hard market” that en-
2003 (4,853) 38,648 33,752 sued in the aftermath of the September 11th
2002 (30,840) 37,225 5,581 terrorist attacks: earned premiums advanced
2001 (52,602) 37,739 (13,800) 11.9% in 2002 and 10.9% in 2003. Growth
2000 (31,220) 40,704 9,857 has been trending downward ever since.
1999 (23,076) 38,855 14,426 Looking ahead, Standard & Poor’s antici-
1998 (16,764) 39,925 23,354 pates that written premium growth for
1997 (5,827) 41,499 35,469 property-casualty insurers will likely be less
*Six months. R-Revised. than 2% in 2008. Earned premium growth is
Source: Insurance Services Office.
also expected to be less than 2% in 2008, re-
flecting a continuation of competitive or
“soft” market conditions.
lion, from $223.1 billion in the comparable
2006 period. For all of 2006, the property- Investment results: an important buffer
casualty industry wrote $443.5 billion in pre- Investment income is an important rev-
miums, a 4.2% rise over 2005 levels. Written enue source for insurers, often accounting for
premiums represent business produced in a 15% to 20% or more of an insurer’s total
given period. Insurers account for this over revenues. Thanks to a generally favorable
the life of a policy (typically 12 months). claims environment, insurers have been able
Hence, the general volume and direction of to hold onto their cash and invest it, reaping
written premiums in one year is usually a the rewards of this positive cash flow.
good indication of the level of earned premi- In the first six months of 2007, net invest-
ums (a revenue component on the income ment income for property-casualty insurers
statement) the following year. rose 19.3%, year over year, to $30.3 billion,
Written premiums in the personal lines from $25.4 billion in the comparable year-
sector (the largest, accounting for 40% of earlier period. Standard & Poor’s anticipates
year-to-date written premiums) rose 0.5%, that the rate of net investment income
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

year to year, in the first six months of 2007.
This group’s business consists primarily of
personal auto and homeowners’ coverage,
which is highly regulated and not as prone to
great pricing swings.
Strength in the personal lines sector was
offset by deterioration in the commercial
lines sector (which accounted for 48% of to-
tal industry written premiums) in the first six
months of 2007. That group reported a
1.4% year-over-year drop in written premi-
ums, year to date, providing empirical sup-
port for anecdotal evidence that the
commercial lines market had softened.
Balanced lines underwriters, who write a
combination of personal and commercial
lines coverage, accounted for the remaining
22% of industry written premiums. This
group posted a 2.1% rise in written premi-
ums, year over year, in the first half of 2007.
growth in 2008 will likely be below 2007’s
level, reflecting our view that underwriting
results may deteriorate slightly (which would
drain cash from insurers’ coffers). Although
investment income growth may also be re-
strained somewhat by turmoil in the market
for mortgage-backed securities, Standard &
Poor’s does not anticipate that insurers will
experience any material adverse impact to
their financial situation because of their ex-
posure to this asset class.
Realized investment gains (the profits
made when investments are sold) totaled
$4.2 billion in the first half of 2007. This
was up significantly from $881 million in
the comparable 2006 interim and con-
tributed to insurers’ profitability. Insurers
also had unrealized investment gains of
more than $6.3 billion in the first half of
2007, also up from the year-earlier total of

2
$4.6 billion. (Note: analysts typically ex-
clude the impact of net realized investment
gains on insurers’ profits when forecasting
earnings. Instead, earnings estimates are
based on net operating earnings, which ex-
clude these gains and/or losses.)
Loss trends reflect a mixed picture
Loss costs and related expenses (common-
ly referred to as loss adjustment expenses)
are often the largest expense item facing an
insurer. A change in the direction of these ex-
penses can dramatically affect bottom-line
results. Insurers in the ISO survey reported
slight erosion in underwriting margins, year
over year, in the first six months of 2007. In-
curred losses rose 1.2% to $117.4 billion,
from $116 billion in the comparable year-
earlier period. Loss adjustment expense
growth was well contained, and rose only
fractionally. Loss adjustment expenses (the
costs incurred in settling claims) totaled
$25.6 billion in the 2007 interim, compared
with $25.4 billion in the year-earlier period.
Loss trends varied widely by line of busi-
ness, with the personal lines area seeing
perhaps the sharpest deterioration. We at-
tribute this erosion to a couple of factors.
Although there were no “mega-cats” (high-
profile catastrophes) reported in the first
half of 2007, catastrophe loss claims for a
number of personal lines insurers rose dur-
ing this period. Allstate Corp., the second
largest personal lines carrier in the US, re-
ported a 7.2% rise in claims and claim ex-
penses (analogous to loss costs and loss
adjustment expenses). Allstate noted that
underwriting results were hurt by higher
catastrophe losses and by deterioration in
some underlying claim trends.
One area that has seen some deterioration is
personal auto. After several years of favorable
year-over-year comparisons of loss costs —
thanks to a combination of aggressive loss mit-
igation and cost control efforts, favorable de-
mographic trends, and driving patterns — the
tide has turned, and personal auto loss costs
have trended slightly upward.
Commercial lines carriers have benefited
from favorable prior-year loss develop-
ments in a number of core lines. This fa-
vorable trend can be seen in the first-half
2007 results of the property-casualty divi-
sion of American International Group
(AIG), leading commercial lines insurer.
AIG’s property-casualty unit reported a
12% year-over-year rise in underwriting
profits for the first half of 2007, largely
due to “favorable claim trends.”
Combined ratio a key gauge of underwriting
performance
The combined ratio is a key measure of
underwriting performance. It is the sum of
the loss ratio, the expense ratio, and (where
applicable) the dividend ratio. A combined
ratio under 100% indicates an underwriting
profit, while one in excess of 100% means
there is an underwriting loss. (For more in-
formation on the combined ratio and its im-
plications for insurer profitability, please
refer to the “How to Analyze a Property-
Casualty Insurer” and “Key Industry Ratios”
sections of this Survey.)
Insurers in the ISO study reported a com-
bined ratio of 92.7% in the six months end-
ed June 30, 2007, compared with 92.0% in
the similar 2006 period. Underwriting results
by type of insurer were mixed, however:
commercial lines writers reported improved
underwriting results, as evidenced by their
combined ratio of 88.8%, versus 90.0% in
the comparable year-earlier period. Balanced
lines writers (who write both personal and
commercial lines of business) reported a
slight deterioration in their underwriting re-
sults and posted a combined ratio of 95.1%
in the first half of 2007, compared with
93.6% in the 2006 interim. Personal lines
writers, however, experienced the most sig-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
nificant deterioration in their underwriting
results, with a combined ratio of 95.0% re-
ported for the six months ended June 30,
2007, compared with 92.9% in the year-
earlier period. In our view, these results re-
flected the impact of higher catastrophe
losses and erosion in a number of personal
auto claim trends.
Loss ratios for this representative group of
insurers (accounting for more than 96% of
industry premium volume) improved to
65.6% in the first half of 2007, versus
65.8% a year earlier, and were driven by the
commercial lines sector, which posted an im-
pressive 61.3% loss ratio, an improvement
over the previous year’s (also decent) 63.8%
loss ratio. This was offset by a deterioration
in loss trends in both the balanced lines
group (which posted a loss ratio of 65.0%,
versus 64.7% a year earlier) and the personal
3
 ESTIMATED CHANGES IN POLICYHOLDERS’ SURPLUS
(Total property-casualty industry, in billions of dollars)
FIRST HALF
ITEM 2005 R2006 2006
Policyholders' surplus—beg. of period 391.3 425.8 425.8
Operating income 45.1 84.6 39.7
Realized capital gains 6.6 3.5 0.9
Income taxes 9.7 (22.4) (11.1)
Net after-tax income 44.2 65.8 29.5
Unrealized capital gains (loss) (3.4) 20.6 4.6
Stockholder dividends & other (15.6) (24.7) (12.9)
New funds 14.4 3.8 1.1
Misc. surplus change (5.1) (4.9) (3.2)
Policyholders' surplus—end of period 425.8 486.2 444.7
R-Revised.
Source: Insurance Services Office.
lines segment (whose aggregate loss ratio ad-
vanced to 69.8% in the 2007 interim, from
68.3% in the year-earlier period). These re-
sults represent a slight deterioration from the
full-year 2006 loss ratio of 65.2% for all
lines. However, loss trends have improved
rather significantly in recent periods. During
the previous five years (which included some
record catastrophes like the 2005 hurricanes
Katrina, Rita, and Wilma, and the 2001 ter-
rorist attacks), the industry loss ratio aver-
aged 78.4%.
Industry expense ratios inched up during
the first half of 2007 to end the period at
26.9%, a full percentage point above the
year-earlier level of 25.9%. The deterioration
(albeit slight) was relatively broad-based,
with all areas feeling the impact of a more
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
competitive operating environment (which
tends to drive up the cost of writing new
business). The dividend ratio was unchanged,
year to year, at 0.3%.
Surplus also rises
Surplus, in this instance, refers to capital,
or net worth: the amount by which an in-
surer’s assets exceed its liabilities. Surplus,
which is often referred to as statutory sur-
plus under statutory accounting principles
(SAP), is analogous to shareholders’ equity
under general accepted accounting princi-
ples (GAAP). At June 30, 2007, insurers in
the ISO study reported a combined surplus
of $512.8.4 billion, up 15.3% from surplus of
$444.7 billion at June 30, 2006. During
2006, surplus increased by more than 14%
and ended the year at $486.2 billion.
4
Since surplus advanced at a greater rate
than written premiums, the industry’s lever-
age declined. In this instance, leverage refers
2007 to the degree to which the industry utilizes
486.2 its capital (or surplus) to underwrite policies.
39.1
The ratio used to measure leverage is the ra-
4.2
(10.6) tio of new written premiums to surplus. (For
32.6 a more detailed explanation of leverage,
6.3 please refer to the “How to Analyze a
(11.7) Property-Casualty Insurance Company” sec-
1.4
tion of this Survey.)
(2.1)
512.8 At June 30, 2007, the ratio of net written
premiums to surplus equaled 0.87-to-1,
down from 0.97-to-1 at June 30, 2006. To
put this ratio into some context, in the 12
months ended June 30, 2007, insurers wrote
$0.87 worth of premiums for every $1 of
surplus, versus $0.97 worth of premiums for
every $1 of surplus in the same 2006 period.
If we assume a “typical” rate of leverage of
2-to-1 (which is what regulators usually al-
low), we estimate that the industry had ap-
proximately $291 billion of “excess” surplus
at June 30, 2007.
We arrived at this conclusion by using the
following data points: the $443.7 billion in
net written premiums in the 12 months end-
ed June 30, 2007, and policyholders’ surplus
of $512.8 billion at June 30, 2007. If we as-
sume a 2-to-1 leverage ratio, the amount of
surplus required to support the actual level
of premium volume is approximately $221.9
billion ($443.7 billion divided by 2). The dif-
ference between actual surplus ($512.8 bil-
lion) and so-called required surplus ($221.9
billion) is $290.9 billion. Put another way,
this excess surplus could theoretically sup-
port another $582 million of written premi-
ums, more than the industry is currently
writing on an annual basis!
Although we need to qualify this exercise
as one designed to illustrate the degree to
which the industry has excess capital, we do
it to make the point that there is an enor-
mous amount of excess capital in the insur-
ance marketplace. Some of this so-called
“excess” capital would be absorbed in the
event of a number of significant increases to
loss reserves and/or a significant catastrophe
loss. In addition, rating agency standards
for capital adequacy have been tightened,
rendering the 2-to-1 leverage of surplus rule
of thumb excessive in some cases. Neverthe-
less, tens (if not hundreds) of billions of
dollars in excess capital, or underwriting ca-
pacity, remain. Standard & Poor’s believes
this excess supply will continue to pressure
premium rates for most lines of coverage
well into 2008.
Monoline insurers expected to bear
the brunt of insurers’ subprime pain
Monoline insurers, as their name implies,
insure one type of risk — that of third-party
debt obligations. Also known as financial
guaranty insurers, these companies guarantee
the timely payment of principal and interest
on the bonds they insure, and collect a pre-
mium from the bond issuer. Premium rates
are based on a percentage of the spread be-
tween a bond’s intrinsic credit quality and a
AAA-rated bond.
Compared with the general insurance in-
dustry, whose roots go back centuries, finan-
cial guaranty insurance is relatively new: the
first municipal bond insurance policy was is-
sued in 1971. Since then, the industry has
grown rapidly: according to data from the
Association of Financial Guaranty Insurers, a
trade association, the industry insured $574
billion (par value) of municipal bonds and
asset-backed securities in 2006.
Unlike the general property-casualty insur-
ance industry, where literally hundreds of com-
panies vie for slivers of market share, the
financial guaranty insurance industry is more
concentrated. The two largest underwriters of
municipal bonds are MBIA Inc. and Ambac
Assurance Corp. (a subsidiary of Ambac Fi-
nancial Group Inc.). Both companies have
leveraged their strength and market leadership
in the municipal bond insurance arena and
have expanded into other areas of the financial
guaranty market — specifically, insuring struc-
tured asset-backed and mortgage-backed
obligations.
For municipal bond insurers, one of
the primary areas of specialization and ex-
pansion was insuring pools of residential
mortgage-backed securities. These pools, or
collateralized debt obligations (CDOs),
grew rapidly as the housing and mortgage
markets surged amid the favorable interest
rate environment of recent years.
In the wake of a meltdown in the sub-
prime mortgage market, however, insurers
have been feeling the stress, as write-downs
in these portfolios pressure their capital
bases. Investors are questioning the ability of
these firms to raise enough capital to stave
off a downgrade in their much needed top-
tier financial strength rating. Investor con-
cerns sent the shares of many of these
insurers plummeting: during 2007, shares of
MBIA plunged nearly 75%, and shares of
Ambac Financial Group fell more than 71%.
P/C insurers have worries as well
Another area of exposure P/C insurers
have to the subprime debacle is through the
issuance of directors’ and officers’ liability
insurance, and errors and omission insur-
ance. Directors’ and officers’ liability policies
generally cover the executives (directors and
officers) of a company for negligent acts or
omissions and for misleading statements that
result in lawsuits against the company. Er-
rors and omissions insurance covers losses
caused by errors and omissions in profes-
sions other than medicine; it is used by
banks, real estate companies, escrow compa-
nies, etc., to protect against negligent acts
that might harm clients. Most commercial
lines insurers, including companies like
American International Group, Chubb
Corp., and The Travelers Companies, Inc.,
issue these kinds of policies.
As of late December 2007, it was too ear-
ly to accurately quantify the magnitude of
claims that are likely to result in the after-
math of the mortgage market’s meltdown.
Initial estimates indicate, however, that this
will likely be a multibillion-dollar insured
event. ■
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
5
 I NDUSTRY P ROFILE

Top companies control the lion’s share

of premiums
The US property-casualty (P/C) industry
comprises thousands of companies, each vy-
ing for a share of the multibillion-dollar mar-
ket for personal and commercial lines
insurance coverage. However, a small group
of companies dominates the market.
According to the latest available data
from Standard & Poor’s, the 10 largest P/C
insurer groups (based on net written premi-
um volume for P/C insurance) wrote approx-
imately $213.3 billion of premiums in 2006.
That accounted for approximately 47.4% of
that year’s $450.3 billion in industrywide
TOP 20 PROPERTY-CASUALTY
UNDERWRITERS — 2006
(Ranked by net premiums written)
written premiums. The five largest insurer
groups wrote approximately $144.9 billion
in premiums, for a market share of around
32.2%. The two largest P/C insurers, State
Farm Group and American International
Group Inc. (AIG), had an 18.6% share of the
US P/C market. Combined, they wrote some
$83.6 billion in premiums in 2006.
Some US companies (notably, AIG) have a
long-established presence in numerous over-
seas markets, and several large P/C insurers
have sought to increase their presence in cer-
tain foreign markets. For the most part,
however, US-based P/C insurers operate pri-
marily in the United States.

UNDERWRITER
NET PREMIUMS WRITTEN† (MIL.$)
2004 2005 2006
INDUSTRY TRENDS
1. State Farm 47,762 47,924 48,651
2. American International An increasingly competitive pricing envi-
Group 31,534 31,715 34,970 ronment — brought on, ironically, by the in-
3. Allstate Insurance Group 25,984 26,795 26,706 dustry’s strong profitability in 2006 and
4. Travelers Group 17,654 17,883 18,636 2007, which fueled an oversupply of under-
5. Nationwide Corp. 14,346 15,201 15,953
writing capacity — is once again threatening
top-line growth in 2008 for the insurance in-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

6. Liberty Mutual Group 13,208 13,947 15,367

7. Berkshire Hathaway 10,972 16,860 15,046 dustry. Favorable investment results and rela-
8. Progressive Group 13,432 14,047 14,089 tively benign catastrophe loss trends aided
9. Farmers Insurance NA 12,456 13,253 bottom-line results in 2006 and 2007. An-
10. Hartford Fire & Casualty Group 9,627 10,590 10,638 other factor helping insurers’ profitability in
recent periods was the favorable trend in
11. Chubb & Son Inc. 10,275 10,349 9,976
prior-year losses on certain “long tail” lines
12. United Services Automobile
Asn Group 8,026 8,172 8,706 of business (where the ultimate cost to settle
13. CNA Insurance Group 7,504 7,282 7,390 a claim is not known for many years). As-
14. American Family bestos claims are an example of “long tail”
Insurance Group 5,956 5,976 5,905 liabilities that were once the scourge of the
15. Safeco Insurance Group 5,676 5,814 5,614 insurance industry; these appear to be finally
coming under control.
16. Zurich Insurance Group NA 5,202 5,434
17. Allianz Insurance Group 4,339 4,441 4,822
Despite the relatively mild hurricane sea-
18. Ace Ltd. 4,527 4,529 4,633 sons in 2006 and 2007, the industry is still
19. W.R. Berkley Corp. 4,089 4,441 4,626 grappling with its exposure to catastrophes.
20. Auto Owners Group 4,271 4,364 4,355 In response to the increasing severity of nat-
†US only. NA-Not available. ural disasters, more property-casualty (P/C)
Source: Standard & Poor’s Ratings Services. companies are acknowledging that changing
weather patterns may play a significant role
in future losses, and that a greater degree of
6
property is at risk. In response, companies
are changing their underwriting and pricing
assumptions in an attempt to better incorpo-
rate this risk.
For risks such as acts of terrorism — for
which affordable and available coverage is
difficult to find — federal support has been
instrumental in addressing market disloca-
tions. Congress is expected to pass another
iteration of the Terrorism Risk Insurance
Act (TRIA), the federal terrorism backstop
insurance program that was enacted in
2002 in the aftermath of the September
11th terrorist attacks and renewed in 2005.
Nevertheless, the industry still faces signifi-
cant coverage gaps for nuclear, biological,
and chemical attacks.
Finally, while investigations initiated sev-
eral years ago by state attorneys general, in-
surance commissioners, and federal
authorities into the industry’s business prac-
tices have wound down, a high-profile trial is
set to start in January 2008 that will likely
call noted investor Warren Buffet to the
stand. A number of former executives at
General Re Corp. (a reinsurer owned by
Berkshire Hathaway Inc.) and American In-
ternational Group, are accused of, among
other things, fabricating a fraudulent finite
reinsurance scheme that ultimately led to the
downfall and resignation of American Inter-
national Group CEO Maurice “Hank”
Greenberg.
Significantly lower catastrophe losses
aided underwriting results in 2006
You would have to go back more than 55
years to find an underwriting performance
that compares with what the property-
casualty (P/C) industry achieved in 2006.
Crucial to that performance was the absence
of 2005’s record catastrophe losses of $61.9
billion — most directly related to Hurricanes
Katrina, Rita, and Wilma. With catastrophe
losses of only $9.2 billion in 2006, the indus-
try reported a $31.2 billion net gain from
underwriting, compared with a $5.6 billion
underwriting loss in 2005, according to the
Insurance Services Office (ISO), an industry
research group.
Contributing to the strong underwriting
results were favorable claims trends outside
of the catastrophe arena. Total incurred loss-
es for insurers in the ISO survey fell 9.9% to
$231.1 billion in 2006, while loss adjustment
expenses (the costs to settle claims) declined
4.5% to $52.6 billion. Given the robust un-
derwriting results and lower losses, the in-
dustry’s loss ratio in 2006 fell by 9.5
percentage points to 65.1%, according to
ISO. Among casualty business lines, the loss
ratio for general liability declined by 12.4
percentage points to 51.6%, its lowest since
at least 1979, ISO said.
But in a sign that competition to retain and
capture new business is raising insurers’ costs,
the industry’s expense ratio rose marginally to
26.5% in 2006, up from 25.8% in 2005. Per-
sonal lines underwriters reported higher ex-
penses, due, we suspect, to advertising costs in
the competitive personal auto business taking
a bite out of overall underwriting perfor-
mance. Indeed, the ISO survey found a 1.1
percentage point jump to 24.4% in the ex-
pense ratio for personal lines carriers.
Still, overall underwriting strength drove
the industry’s combined ratio down by 8.5
percentage points to 92.4%. The combined
ratio is the sum of the loss and expense ra-
tios, along with dividend ratios, if applicable;
a ratio below 100% demonstrates an under-
writing profit, while one in excess of 100%
signifies an underwriting loss. (For a further
explanation of key industry metrics such as
the combined ratio, see the “Key Industry
Ratios and Statistics” section of this Survey.)
Despite what has been a softer environ-
ment for premium pricing, the ISO study
found that the industry’s net earned premi-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
ums rose 4.3% to $443.8 billion in 2006, up
from $425.5 billion in 2005. Profitability
surged far beyond top-line growth, thanks to
the industry’s underwriting performance.
Full-year 2006 net income jumped 44.3% to
$63.7 billion, according to ISO.
Getting a handle on asbestos claims
While the main driver of improved in-
surer profitability in 2006 was the precipi-
tous drop in catastrophe claims, other
factors also contributed. One was an im-
proved claim environment for a number of
casualty lines of business. Another was an
improved environment for asbestos claims.
According to A.M. Best, incurred asbestos
losses totaled $1.6 billion in 2006, down
sharply from $3.6 billion of incurred losses
reported in 2005.
7
 Asbestos was used in a variety of commer-
cial and consumer products, including roof-
ing and flooring, fireproofing, and thermal
insulation. Because of its widespread use
decades ago, millions of people were exposed
to this substance, which has been linked to
cancer and other diseases.
The initial wave of asbestos claims be-
gan more than 20 years ago and primarily
targeted companies that manufactured as-
bestos and asbestos-related products. Lia-
bility claims in these suits typically came
under a portion of a manufacturer’s liabili-
ty policy that had strict limits on insurers’
liability. These resources were depleted,
however, as many asbestos manufacturers
filed for bankruptcy.
A second, more costly wave of litigation
involves companies that used asbestos prod-
ucts. These claims are being filed under a
more general area of a company’s liability
policy — one that typically has less strict
coverage limits. Consequently, insurers’ lia-
bilities for claim costs have escalated.
An overall increase in claims being filed
has exacerbated the impact on insurers.
Many unions and lawyers are urging workers
and others who may have had contact with
asbestos to file claims, warning that if they
later develop an illness, there may not be
enough resources left to pay their claims.
The lack of meaningful reform in the way
cases are settled also prompted more claims.
A 1999 US Supreme Court decision ruled
that a class action settlement of claims
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
against Fibreboard Corp., a major asbestos
producer, could not proceed because funds
might be exhausted before all claims were
paid. In addition, because the Supreme Court
would not give a number of these cases class
action status, the number of cases has in-
creased. In recent years, however, the tide
has begun to turn, largely due to some mean-
ingful tort reform measures and a backlash
(largely on the part of some judges) in re-
sponse to growing evidence that fraudulent
claims are being made.
Asbestos claim costs still an issue, but a
manageable one
Given the level of uncertainty surrounding
this litigation, the potential financial impact
on insurers is difficult to quantify. Neverthe-
less, a survey published by Tillinghast-Towers
Perrin, an actuarial consulting firm, estimated
8
that the final tab from asbestos could reach
$200 billion. Tillinghast estimated that the US
insurance industry would bear about 30% of
the total cost, or between $55 billion and $65
billion. An estimated 31% would be borne by
overseas insurers. Manufacturers, suppliers,
and other users of asbestos products would
pay out the remaining 39%.
According to data obtained from ISO, in-
curred asbestos losses and loss adjustment
expenses rose from $1.0 billion in 1997 to a
peak of $7.6 billion in 2002, before falling to
$1.6 billion in 2006. According to a report
published in late November 2007 by A.M.
Best, the US property-casualty insurance in-
dustry’s exposure to asbestos claims is nearly
fully funded (based on the aforementioned
Tillinghast study estimates of ultimate loss-
es). According to A.M. Best, nearly 96% of
the industry’s ultimate asbestos loss estimates
were funded through year-end 2006, up from
approximately 55% in 2001. However, the
study also noted that many individual com-
panies are likely to continue incurring
charges for asbestos claims, and that approx-
imately 67% of the industry’s asbestos losses
were concentrated among five insurer
groups.
Insurers reexamine catastrophe risks,
concede impact of climate change
After a direct strike on the US Gulf Coast
and the city of New Orleans in August 2005,
Hurricane Katrina produced insured losses
much greater than what the insurance indus-
try had expected. When that storm was
quickly followed by Hurricanes Rita and
Wilma in September and October 2005, US
insurers and the global industry were left
with record natural catastrophe losses for the
second consecutive year.
The industry suffered $61.9 billion in cat-
astrophe losses in 2005, up from $27.5 bil-
lion in 2004, according to Property Claims
Services, a unit of Insurance Services Office
Inc. (ISO), an insurance research and data
collection organization. The scope of these
losses has led insurers to reexamine their ex-
posure to catastrophes. Rating agencies are
requiring insurers to hold more capital in re-
serves. Computer modeling firms, which pro-
vide insurers with products that help them
gauge their loss exposures, are changing key
assumptions about how wind pushes ocean
water onshore and the way in which rebuild-
ing costs skyrocket after a hurricane. In the
case of Hurricane Katrina, the failure to ade-
quately account for these factors led to much
higher losses than the models predicted.
The spate of devastating storms in 2005
may have been more than just a statistical
anomaly or a run of bad fortune. The theo-
ry that is fast becoming an industrywide
standard is that higher sea surface tempera-
tures in the North Atlantic are contributing
to more frequent and severe storms. Ac-
cording to the National Center for Atmos-
pheric Research (NCAR), there were 25 big
storms (i.e., ranked Category 4 or 5 on the
Saffir-Simpson Scale of storm intensity)
from 1990 through 2004, but only 16 be-
tween 1975 and 1989. In research pub-
lished in September 2005, NCAR reported
that the North Atlantic was the only global
region that it studied where the total num-
ber of hurricanes had risen over the past
decade. The region averaged eight to nine
hurricanes per year between 1995 and
2004, compared with six to seven before
1995. Another factor is that more storms
are making landfall than in the past. Mu-
nich Reinsurance Co. notes that, in the cur-
rent warm phase (since around 1995), the
number of storms in Categories 3 to 5 that
make landfall has increased about 70%
compared with the previous warm phase
(dating roughly from 1926 through 1970).
Although catastrophe losses have fallen
precipitously in recent years — to $9.2 bil-
lion for all of 2006 and $4.7 billion for the
first nine months of 2007 — insurers have
remained mindful of the impact that cli-
mate change is having on catastrophes and
on their business models in general. In-
deed, according to a research study spon-
sored by Ceres (an environmentally focused
institutional investor group), the global in-
surance industry has “vastly” increased its
response to global warming. According to
the Ceres study, insurers doubled the cli-
mate change–related products and services
being offered in 2007. In our view, the in-
surance industry’s response is multifaceted
and reflects steps many companies have
taken to be good corporate citizens (i.e., by
pledging to reduce their carbon footprint)
and to better incorporate climate change as
a risk that is integrated into their under-
writing processes.
For Swiss Re, one of the world’s leading
reinsurers, “climate change is a core
issue…and an important element in the com-
pany’s long-term strategy. Climate change has
the potential to significantly shift global
weather patterns, thereby strongly affecting
the number and severity of natural catastro-
phes, and, in turn, the entire insurance indus-
try.” Swiss Re’s chief goal in its climate
change activities is perceiving and understand-
ing current and future risks to allow the com-
pany to better adapt its business strategy.
Further, Swiss Re actively pursues an ongoing
risk dialogue to assist clients through sharing
knowledge and developing risk solutions.
A number of US insurers have also inte-
grated a number of environmentally friendly
practices into their underwriting standards.
One of the areas of focus for environmental
groups is the level of auto emissions and the
dangers posed by them. A number of auto
insurers have offered incentives and dis-
counts to drivers who adopt “green” habits.
Many offer insurance discounts for hybrid
vehicles, and a number have structured their
auto policies as a “pay as you drive” model,
which typically offers discounts to drivers
who do not drive a lot.
Haggling over TRIA
Though losses from natural disasters like
Hurricane Katrina and the California wildfires
have made headlines in recent years, insurers
have also had to contend with man-made dis-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
asters, including terrorist attacks. Insured loss-
es from the September 11th terrorist attacks
(which included property damage, business in-
terruption coverage, commercial liability, and
group life insurance claims) totaled $35.9 bil-
lion (in 2006 dollars), according to data ob-
tained from the Insurance Information
Institute. Approximately two-thirds of these
losses were covered by reinsurers.
Before September 11th, insurers typically
provided terrorism coverage to their com-
mercial insurance policies at essentially no
additional cost because the risk of such an
event on US soil was considered remote. In
the aftermath of the unprecedented losses
from the 9/11 attacks, however, many insur-
ers and reinsurers instituted “terrorism ex-
clusions” in a number of their policies.
Those insurers who did offer terrorism cov-
erage did so at premium rates that were pro-
9
 hibitively expensive. The US business com-
munity argued that a lack of coverage was
hindering the economic recovery and threat-
ening certain business sectors.
To alleviate the market dislocation, the
Terrorism Risk Insurance Act (TRIA) was
passed and signed into law in November
2002. The law set up a federal reinsurance
program in which insurers and the federal
government would share losses. At the time
it was passed, the 2002 law was seen as a
transition, until a market-based solution
could be created. In December 2005, howev-
er, it was extended for another two years
amid a continued shortage of available rein-
surance for insurers to lay off their risks.
TRIA’s extension in 2005, made with the
support of an eleventh-hour lobbying cam-
paign from industry groups and other busi-
ness leaders, left the industry still searching
for longer-term alternatives to terrorism cov-
erage. Before the elections in November
2006, the Bush administration said that it
would not support another extension of the
program. The US Department of the Trea-
sury, the program’s administrator, argued
that the program would hinder development
of coverage in the private market. Reports
published in late 2006 by the US Govern-
ment Accountability Office and the Presi-
dent’s Working Group on Financial Markets
echoed these sentiments and said that the
continuation of TRIA would hinder the for-
mation of a meaningful, private market solu-
tion to the lack of terrorism insurance.
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
Terrorism insurance poses challenges
for P/C industry
The insurance industry’s perspective on
insuring terrorism is that this kind of risk
is unlike any other for which the industry
provides coverage. To be insurable, a risk
must first be measurable. To adequately
price a risk, insurers must be able to ascer-
tain the probable number of events (i.e.,
the frequency) likely to result in claims.
Next, they must be able to estimate the po-
tential maximum size or cost of these
events (i.e., the severity). By calculating the
probable frequency and severity of an
event, insurers can then better evaluate the
cost of insuring a particular risk.
A terrorist act, according to the insurance
industry, does not possess these characteris-
tics, rendering it impossible to price as a risk.
10
Also, since there have been very few large-
scale terrorist attacks, very little data exist
from which to draw conclusions as to both
severity and frequency trends.
There is a general agreement that the es-
tablishment and extension of TRIA has
helped insurance companies provide some
meaningful terrorism protection, largely due
to the backstop protection the federal gov-
ernment offers. Indeed, the extension of
TRIA in 2005 greatly increased the percent-
age of losses that private insurers would have
to absorb before the government stepped in:
the triggering event rose to $50 million from
$5 million. In 2007, the triggering event rose
to $100 million: only terrorist events that
produced losses in excess of $100 million
would result in the outlay of federal funds.
Moreover, individual insurance companies
would have to incur losses equal to 20% of
their commercial insurance premiums in
2007 before the federal program kicked in.
In return for the federal backstop, com-
mercial insurers were required to make ter-
rorism coverage available and to explicitly
state its cost. Policyholders could opt out of
the terrorism coverage if they chose.
TRIA expiring again
Now that the TRIA extension is set to ex-
pire, both houses of Congress have intro-
duced legislation to extend the Act. The
Senate version essentially keeps the major
components of TRIA intact. The original ver-
sion of the House proposal sought to lower
the threshold under which the government
would contribute payments. The House pro-
posal originally sought to make coverage
available for nuclear, biological, chemical,
and radiological (NBCR) attacks, but subse-
quent revisions dropped that proposal.
As of early December 2007, the House
proposal was still seeking to expand cover-
age to include group life contracts. Both the
House and Senate proposals call for remov-
ing the distinction between domestic and
foreign-backed terrorism. (The original act
only covered foreign-backed acts of terror-
ism.) Given how close the deadline is, and
how vehemently President Bush is vowing
to veto any expansion of the TRIA act,
Standard & Poor’s believes that the version
of TRIA that is finally enacted will closely
resemble the version of the Act that was re-
newed in 2005.
Helping homeowners could prove elusive for
Congress in 2008
While negotiations over the extension and
over certain provisions within TRIA may
lead to some spirited debates as the deadline
looms, Standard & Poor’s expects passage of
TRIA to occur. A renewal of TRIA will help
commercial insureds in the event of a terror-
ist attack. What is less clear is the fate of
bills in the House and Senate aimed at aiding
homeowners impacted by catastrophes.
One of the many unfortunate side effects
from a significant catastrophe — in addition
to the destruction of property — is the likeli-
hood that insurance rates in storm-prone ar-
eas tend to rise, sometimes significantly.
Homeowners unlucky to have been in the
path of Hurricane Katrina received a doubly
rude awakening: not only did many see their
insurance premiums surge, some were not
even able to get coverage as insurers sought
to reduce their exposure to storm-prone ar-
eas. Seeking to alleviate this crisis, the House
of Representative in November 2007 passed
a bill dubbed the Homeowners Defense Act.
The bill, which was introduced into the
House in August 2007 by a group of Florida
representatives, contains two parts. First, it
would establish a National Catastrophe Risk
Consortium, which would allow states to
voluntarily bundle their catastrophic risk
programs (like Florida’s Hurricane Catastro-
phe Fund), then transfer that risk to the pri-
vate markets through the use of catastrophe
bonds sold to investors or through private
reinsurance contracts. The second part of the
bill proposes establishing a National Home-
owners Insurance Stabilization Program,
which would allow the US Treasury to make
loans to any state that faces a significant fi-
nancial disaster in the aftermath of a major
catastrophe.
The bill passed in the House by a relative-
ly wide margin (258 to 155) and has moved
to the Senate, where Senators Bill Nelson (D-
Florida) and Hillary Rodham Clinton (D-
New York) have introduced matching
legislation.
Support for this legislation is relatively
light, and many observers believe its chances
of passage in the Senate are slim. Members
of the regulatory community are in favor of
this proposed legislation, while insurers are
mixed in their support. The Bush administra-
tion opposes the legislation and said it be-
lieves the private insurance market is work-
ing just fine. Some homeowners in Florida
would probably disagree!
Investigations lead to changes in
business practices, high-profile trial
Since late 2004, the US insurance industry
has been embroiled in several investigations
into its business practices. Spearheaded by
Elliot Spitzer (then the attorney general of
New York State; governor, as of January 1,
2007) and joined by other states’ attorneys
general and the Securities and Exchange
Commission, the probes have examined con-
tingent commissions, bid rigging, finite rein-
surance contracts, and other accounting
irregularities.
The investigations led to numerous multi-
million-dollar settlements and earnings re-
statements. As of May 2006, the New York
Attorney General’s office noted that its probe
of insurance industry misconduct had led to
settlements with six companies and the re-
covery of about $3 billion in restitution and
penalties since late 2004.
The results of these probes have been pro-
found. Most insurance brokers have agreed
to stop accepting contingent commissions, a
standard industry practice that had formed
the lion’s share of their revenues. These com-
missions may involve payments from insurers
to brokers based on the profitability of the
business placed, the volume of a client’s busi-
ness placed with an insurer, or even the per-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
centage of a client’s business that the insurer
renews.
Regulators’ scrutiny of reinsurance trans-
actions under the broad banner of finite rein-
surance and alternative risk products has
dramatically curtailed premium volume for
those firms once active in this segment. It
also has led to increased disclosure require-
ments by state regulators and the NAIC.
In April 2006, the Financial Accounting
Standards Board (FASB), the private group
that sets US standards of financial account-
ing and reporting, said that it would examine
risk transfer in insurance and reinsurance
contracts. FASB’s project is expected to de-
velop an accounting standard that separates
the finance and insurance aspects of these
contracts so that they are appropriately ac-
counted for as liabilities or as risk transfer
mechanisms. The Board plans to issue an Ex-
11
 posure Draft in the second quarter of 2008
that will do three things: clarify the level of
insurance risk transfer required for a con-
tract to be accounted for as reinsurance, re-
quire non-insurance policyholders to evaluate
their contracts to ensure that risk is actually
being transferred, and improve insurance and
reinsurance disclosure requirements.
Probe set off in 2004
In October 2004, attorney general Spitzer
charged Marsh & McLennan Companies
Inc. (MMC) with fraud and antitrust viola-
tions. The lawsuit pointed to an alleged
scheme in which MMC, in collusion with
certain insurers, would solicit and obtain
fake quotes, or bids, for insurance contracts.
The complaint noted that other insurers par-
ticipated in Marsh & McLennan’s alleged
“steering” scheme (in which the company so-
licited false and inflated bids from underwrit-
ers, then determined which would be
awarded the insurance contract). A broad
range of MMC’s clients were affected by the
alleged scheme, including large corporations,
mid-sized businesses, and municipal govern-
ments. The result of this bid rigging, accord-
ing to the suit, was to deceive insurers and/or
clients into believing that a truly competitive
bidding process had taken place for clients’
business.
Other insurers mentioned in the lawsuit
were American International Group Inc.
(AIG), ACE Ltd., Hartford Financial Services
Group Inc., and a unit of Munich Re. Short-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
ly after Mr. Spitzer’s office originally filed
suit against Marsh & McLennan in October
2004, many insurance brokers stopped ac-
cepting contingent commissions.
In January 2005, Marsh & McLennan
settled with the New York Attorney General
and the New York State Department of In-
surance. Under the agreement, the company
established an $850 million fund to compen-
sate US clients that had retained the firm be-
tween January 1, 2001, and December 31,
2004, to place insurance and where contin-
gent commissions were involved.
Similar settlement agreements were an-
nounced in the following months. In March
2005, Aon Corp., the second largest US bro-
ker, agreed to set up a $190 million fund to
compensate clients where the placement of
insurance business included contingent com-
missions. The following month, Willis Group
12
Holdings Ltd. announced a $51 million fund
as part of a settlement with attorneys general
in New York and Minnesota and with the
New York Insurance Department.
Insurers and brokers are now guided by
model rules set forth by the NAIC. These
rules require clients’ acknowledgement and
approval before brokers can collect compen-
sation from insurers or other third parties
when placing business.
Settlements highlight reinsurance deals
The initial lawsuit against Marsh &
McLennan in 2004 quickly spread to other
insurers. Zurich Financial Services and ACE
Ltd. both settled charges in 2006 regarding
bids solicited by brokers as part of an alleged
scheme to fix prices for excess casualty insur-
ance, a product that provides coverage for
losses above an existing primary insurance
policy.
Both Zurich and ACE, along with AIG,
were alleged to have engaged in improper fi-
nite reinsurance agreements that bolstered
their financial results and those of their
clients. Zurich agreed in March 2006 to pay
$171.7 million in restitution and penalties as
part of a settlement with attorneys general in
nine states and one insurance commissioner.
ACE, a Bermuda-based reinsurance firm,
agreed in April 2006 to an $80 million settle-
ment with attorneys general in New York,
Connecticut, and Illinois, and with the New
York State insurance department.
The finite and nontraditional reinsurance
agreements under scrutiny by regulators gen-
erally included similar features. The amount
of risk transferred was not sufficient to qual-
ify as reinsurance for accounting purposes
and probably should have been listed as a li-
ability, like a loan.
Transactions also may have included side
agreements that were not disclosed. The na-
ture of these agreements served to cap the
reinsurer’s losses, and at times guaranteed
the profits the reinsurer could make from the
deals, thus eliminating risk.
For AIG, the world’s largest insurance
group, questionable reinsurance deals and im-
proper accounting ultimately led it in May
2005 to restate earnings downward by nearly
$4 billion for the five years from 2000
through 2004. As a result, shareholders’ equi-
ty was reduced by $2.26 billion, to $80.61
billion as of year-end 2004. These events
proved to be the undoing of longtime AIG
chairman and CEO Maurice “Hank” Green-
berg, who resigned in early 2005. The trial
against several General Re Corp. executives
accused of devising the fraudulent finite rein-
surance scheme with AIG was set to com-
mence on January 7, 2008. Among those on
the government’s witness list is famed investor
Warren Buffet, chairman of Berkshire Hath-
away Inc., the parent company of General Re.
M&A update
The P/C industry ended 2006 with more
than $200 billion in excess underwriting ca-
pacity, making for a competitive operating
environment that is pushing premium rates
lower. Although conditions of excess capital,
competition, and limited prospects for organ-
ic growth generally set the stage for merger
and acquisition (M&A) activity within the fi-
nancial services sector, they were not much
of a catalyst for combinations among P/C
firms in 2006.
In 2006, global M&A volume reached
$3.8 trillion, nearly a 38% increase over
2005 levels, according to Thomson Finan-
cial. While the financial sector has been
among the more active participants, insurers
seem content to either sell off nonstrategic
assets or buy up books of business, generally
to extract income from improved claims
management.
The overall factor that has limited block-
buster deals in the P/C insurance space, pri-
marily since 2003, may be the difficult
nature of gaining industry control through
consolidation. In the P/C industry, there are
low barriers to entry. Perceived capacity
shortages, which would give companies a
dominant market position in other indus-
tries, only serve to attract even more capi-
tal. In the wake of catastrophe losses in
2005, for example, more than $10 billion
in capital flowed to Bermuda to form new
reinsurance companies. In addition, insur-
ers that want to expand geographically
within the United States need only to file
with insurance regulators for admittance to
a particular state. Then they can begin
writing new business.
One result of the insurance industry investi-
gations has been to propel acquisition activity
among P/C brokers. Deals in 2007 mostly fea-
tured private equity players who saw opportu-
nities to extract savings from the brokers’ dis-
tribution model. The steady cash flows that
stable brokers’ operations provide give these
buyers a chance to leverage up the capital
structure of the acquired company. In Febru-
ary 2007, an affiliate of Goldman Sachs
Group paid $1.4 billion for USI Holdings, the
nation’s ninth largest broker (based on 2006
premiums). That was followed in March by
the $1.8 billion purchase of Hub International
Ltd. by a group led by Apex Partners. In June
2007, Alliant Insurance Services, a mid-sized
broker, agreed to be acquired by the Black-
stone Group for $1.4 billion.
The changing nature of consolidation activity
To remain competitive in a relatively
weak environment for premium rates, in-
surers have turned to tweaking their busi-
ness models. Some companies are selling off
nonstrategic assets, downsizing, or exiting
the business.
The capital-intensive nature of the insur-
ance industry pushed corporate giant Gener-
al Electric Co. (GE) to sell its GE Insurance
Solutions unit to Swiss Reinsurance Co. for
$6.8 billion in November 2005. GE chipped
in $3.4 billion to the unit’s reserves as part of
the deal.
While the GE transaction was in the
reinsurance space, reserve levels for some
insurers also may need adjustment, putting
some under financial pressure. Some of
these insurers could be acquired, if the
price were right, though general wariness
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
toward traditional M&A still prevails in
the current environment.
The cautious stance toward M&A also
may relate to the investigations into the in-
dustry’s practices, which have shrouded P/C
insurers in a regulatory cloud since late
2004. Now that these investigations are
winding down, companies may be more in-
clined to consider shifting or enhancing their
business mix or increasing their economies of
scale through M&A. An exception, however,
is Liberty Mutual. Though still fighting alle-
gations of improper commission payments,
among others, the insurer agreed in May
2007 to acquire Ohio Casualty Corp. in a
deal valued at $2.7 billion. The transaction
should allow Liberty Mutual to strengthen
its regional presence and expand the distribu-
tion of its products through Ohio Casualty’s
independent agents.
13
 For their part, global insurers and reinsur-
ers continue to engage in strategic transac-
tions. In May 2007, Converium Holding AG,
a Switzerland-based reinsurer, agreed to be
acquired by Scor SA, a French reinsurer.
Converium had rejected Scor’s initial offer,
but reconsidered when Scor increased the
price. The transaction calls for Scor to pay
$2.8 billion for Converium in a stock-and-
cash deal.
HOW THE INDUSTRY OPERATES
The property-casualty (P/C) insurance in-
dustry is essentially a risk-bearing enterprise.
In the event of a loss, insurance is a means
by which the burden of that loss — whether
related to the destruction of property or an
incurred liability — is shared. Typical P/C
policies include auto coverage, workers’
compensation coverage, homeowners’ cover-
age, and others.
There are two kinds of ownership struc-
tures in the P/C industry: mutual and stock.
A mutual insurance company is owned by its
policyholders, and its capital is called policy-
holders’ surplus. State Farm Group — the
largest P/C insurer in the United States,
based on premium volume — is a mutual in-
surance company.
The second largest P/C insurer, American
International Group Inc., is a stock insurance
company. Investors (that is, shareholders) are
issued stock as evidence of their ownership
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
interest, which is represented by sharehold-
ers’ equity.
The money flows in...
Regardless of an insurance company’s
ownership structure, the insurance business
is one of shared risk. Insurers collect pay-
ments in the form of premiums from people
who face similar risks. A portion of those
payments is set aside to cover policyholders’
losses. Therefore, earned premiums are typi-
cally an insurer’s primary revenue source.
At the time a policy is issued, it is record-
ed on the insurer’s books as a written premi-
um. Then, over the life of the policy, the
premium is “earned,” or recognized as rev-
enue, on a fractional basis. These premiums
are classified as deferred revenues and as-
signed to an unearned premium reserve,
14
which is listed as a liability on an insurer’s fi-
nancial statement.
There is usually a lag of about 12 months
between the time a policy is written and the
time the full premium is recognized as rev-
enue. For example, a $600 premium for a
year of auto insurance coverage would be
“earned” by the insurer at the rate of $50 a
month for 12 months. (See the cash flow dia-
gram for details on the flow of funds.)
After premiums, the second largest com-
ponent of insurer revenues is investment in-
come. This is derived from investing the
funds set aside for loss reserves and unearned
premium reserves and from policyholders’
surplus or shareholders’ equity.
The third and usually smallest revenue com-
ponent is realized investment gains; this com-
ponent is the most volatile and hardest to
predict. Realized investment gains arise from
the sale of securities (usually stocks and bonds)
in an insurer’s investment portfolio. Because
the timing and magnitude of the gains depend
on conditions in the securities markets, which
are by their nature dynamic, it is difficult to
forecast realized investment gains.
...and the money flows out
An insurer’s revenue must cover a variety
of expenses. One expense is the commission
paid to the insurance broker, agent, or sales-
person for selling a policy; this is usually de-
ducted immediately from the collected
premium. The insurance company generally
accounts for this commission by deducting it
from its policyholders’ surplus account and
crediting it to the unearned premium reserve.
After commissions are paid, premium dol-
lars are used to cover a variety of expenses.
The largest expense facing a P/C insurer is
losses, also referred to as policyholder
claims. Funds also are used to pay claims-
related expenses and loss adjustment expenses,
including insurance adjusters’ fees and litiga-
tion expenses. Insurers face other expenses re-
lated to the underwriting process, such as
salaries for actuarial staff. The underwriting
profit (or loss) is determined by subtracting
these expenses from earned premiums.
Like most other companies, insurers incur
various other operating expenses and interest
costs. Pretax profits are calculated by sub-
tracting these expenses from underwriting
profits. After-tax (or net) income is derived
CASH FLOW DIAGRAM—PROPERTY-CASUALTY INSURANCE COMPANIES
(A simplified model)

POLICYHOLDER PAYS PREMIUM POLICYHOLDERS’

1 SURPLUS

AGENT WITHHOLDS COMMISSION

COMPANY PUTS PREMIUM INTO COMPANY ADDS AMOUNT OF

UNEARNED PREMIUM RESERVE COMMISSION TO UNEARNED
COMPANY PREMIUM RESERVES
EARNS
PREMIUM
OVER TERM
OF POLICY
FULL PREMIUM NOW EARNED COMPANY REPLACES MONEY
TAKEN FROM SURPLUS

COMPANY PAYS CLAIMS OR

CREATES LOSS RESERVES TO PAY
UNSETTLED CLAIMS

COMPANY PAYS OTHER

BUSINESS EXPENSES 2

COMPANY PAYS TAXES AND FEES 3

UNDERWRITING PROFIT (OR LOSS)

PREMIUM RESERVES LOSS RESERVES POLICYHOLDERS’

PRODUCE PRODUCE SURPLUS PRODUCES

INVESTMENT INCOME INVESTMENT INCOME INVESTMENT INCOME

TOTAL INVESTMENT
INCOME
4
6
DIVIDENDS TO INVESTMENT EXPENSES
POLICYHOLDERS 5

JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

NET INVESTMENT GAIN
(OR LOSS)

7
NET OPERATING INCOME
(OR LOSS)

DIVIDENDS TO ADDITIONS TO
STOCKHOLDERS 8
POLICYHOLDERS‘
SURPLUS TO SUPPORT
FUTURE GROWTH

1 The excess of assets over liabilities.

2 Overhead costs — rent, salaries, etc.
3 Federal, state, local taxes, licenses, and fees.
4 Includes interest, dividends, rents, and realized capital gains.
5 On certain lines only.
6 Costs of operating the company’s investment program.
7 If underwriting loss exceeds investment gain, there will be a net operating loss.
8 Applies only in the case of capital stock companies.
Source: Insurance Information Institute.

15
 by taking pretax profits and subtracting
shareholder dividends and federal and state
income taxes.
According to data obtained from Insur-
ance Services Office Inc. (ISO), an industry
research and data collection organization,
net written premiums for the P/C insurance
industry rose approximately 4.3% to $443.8
billion in 2006, from $425.5 billion in 2005.
Earned premiums advanced by 4.4% to
$435.8 billion in 2006 from $417.6 billion
in 2005.
Underwriting results in 2006 improved
considerably compared with 2005 due to far
fewer catastrophe losses. With no hurricanes
striking the US in 2006, the industry posted
a $31.2 billion net gain on underwriting, re-
versing the $5.6 million net loss on under-
writing in 2005. According to ISO’s Property
Claim Services unit, catastrophes in 2006
caused $9.2 billion in direct property losses
(before recoveries from reinsurance), com-
pared with $61.9 billion in 2005, the year
that Hurricanes Katrina, Rita, and Wilma
struck the US. (A catastrophe is defined as an
incident or series of incidents causing insured
losses of $25 million or more.)
The industry’s 2006 underwriting perfor-
mance benefited from favorable loss develop-
ments in most other lines of business, in
addition to the sharply lower catastrophe
losses. In 2006, total incurred losses fell
9.9% to $231.1 billion, from $256.5 billion
in 2005. Loss adjustment expenses (the ex-
penses incurred in settling claims) declined
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
by 4.5% to $52.6 billion, from $55.1 billion
in 2005. Incurred losses and loss adjustment
decreased by 9.0% to $283.7 million, from
$311.4 billion in 2005.
DISTRIBUTION OF ASSETS — 2006
(Total US property-casualty industry, in percent)
Other invested
Cash & short-term
investments 7.3% assets 4.4%
Real estate &
mortgage loans
1.0%
Common stock
24.9%
Preferred stock 1.2%
Source: Standard & Poor’s Ratings Services.
16
Along with the underwriting profits and
lower loss costs, investment activities also
contributed to insurers’ bottom lines in
2006. Realized gains fell sharply, though,
contributing to a decline in overall invest-
ment gains. Net investment income rose by
5.2% to $52.3 billion, from $49.7 billion in
2005. Realized capital gains on investments
fell 65.4% to $3.4 billion in 2006, versus
$9.7 billion in 2005. As a result, total invest-
ment gains decreased by 6.4% to $55.7 bil-
lion in 2006, from $59.4 billion in 2005.
The industry had unrealized capital gains
of $20.8 billion in 2006, a reversal from
2005, when it had unrealized capital losses
of $3.4 billion, according to ISO. Manage-
ment of insurance companies may have de-
cided to “bank” some capital gains in 2006
in order to have the option of bolstering
profits in the future should underwriting re-
sults deteriorate, according to research by the
Insurance Information Institute.
The sharp swing in underwriting results,
lower loss costs, and investment gains result-
ed in a 44.1% rise in the industry’s net in-
come in 2006. Insurers in the ISO study
reported after-tax income of $63.7 billion,
versus net income of $44.2 billion in 2005.
Keep the cash circulating
Many property-related insurance claims
are settled relatively quickly. They often are
referred to as “short-tail” liabilities because
the period between the incident causing the
loss (such as a storm that damages a home)
and the claim settlement is relatively short.
Because of this, P/C insurers maintain the ma-
jority of their investments in highly liquid se-
curities that can be converted quickly to cash.
This liquidity ensures that policyholders can
be paid promptly in the event of a loss.
Based on the latest available aggregate in-
dustry statistics from Standard & Poor’s
Bonds 61.2%
(which includes both mutual and stock insur-
ance companies in its survey), assets of the
P/C industry totaled $1.62 trillion at year-
end 2006, up 5.2% from $1.54 trillion at
year-end 2005. Of the total assets at year-end
2006, investments constituted 82.3%, or ap-
proximately $1.35 trillion. As a portion of
invested assets, bonds accounted for more
than 61%. Other investments included com-
mon stocks (24.9%), preferred stocks
(1.2%), and cash and short-term investments
(7.3%). The remaining 5.4% of the P/C in-
dustry’s investments were in mortgage loans,
real estate, and other investments.
An insurer derives funds for investment
from three primary sources: its loss reserves,
its unearned premium reserve, and its policy-
holders’ surplus. Loss reserves, which are the
funds set aside to pay claims, are by far the
largest component of the P/C industry’s lia-
bilities. For the insurers in the ISO survey,
loss and loss adjustment reserves amounted
to $514.2 billion at year-end 2006, or about
55% of total liabilities of $941.2 billion.
The second largest liability on an insurer’s
books, and a principal source of investment
income, is the unearned premium reserve. At
year-end 2006, unearned premiums for the
insurers in the ISO survey equaled $202.7
billion, or 21.5% of total liabilities. The un-
earned premium reserve represents the liabili-
ty for that portion of a written premium that
has been charged to the policyholder but has
not yet been used. Using our earlier example
of the $600 annual auto insurance premium,
the unearned premium reserve would total
$550 at the end of the first month, because
$50 (or one-twelfth) of the annual premium
had been “earned,” or accounted for as an
earned premium on the insurer’s books.
Loss reserves: the financial buffer
As the largest component of an insurer’s
liabilities, loss reserves have an important
bearing on financial results. An insurer’s
prosperity depends largely on its ability to
quantify accurately the ultimate cost of the
losses from the risks it assumes.
When reserve levels are too high — that
is, when an insurer sets aside too much mon-
ey to pay future claims — profits appear
lower than they actually are. Consequently,
premium rates might not appear high enough
to cover losses, causing the insurer to raise
its rates unnecessarily. Conversely, if reserves
are too low, profits will be inflated, leading
an insurer to lower its rates inappropriately.
In either situation, once losses develop, inac-
curate reserve levels ultimately will have to
be adjusted. Such erratic accounting adjust-
ments can make an insurer’s financial posi-
tion seem unstable.
Establishing premium and loss reserve
levels requires an insurer to estimate the
ultimate value of future losses, which is ex-
tremely difficult to do accurately. Along
with the unpredictability of natural disas-
ters, forecasts of future losses are subject
to several other variables, including (but
not limited to) real economic growth, infla-
tion, interest rates, sociopolitical trends,
judicial rulings, and voter initiatives.
The trend in recent years toward a greater
proportion of the insurance business being
written in casualty lines has made the reserving
process even more difficult. It is considerably
harder to estimate the ultimate losses from ca-
sualty lines than from property lines such as
homeowners’ coverage, because casualty lines
have “long tails” — that is, the periods be-
tween the origination of the policy, the event
leading to a claim, and the subsequent pay-
ment of that claim may be years or even
decades. Inflation can have a highly negative
impact on the insurer’s eventual costs as the lia-
bility’s “tail” lengthens. On the plus side, how-
ever, this characteristic of casualty lines lets the
insurer invest those premium dollars for a
longer time.
Estimating the losses...
The calculation of loss reserves involves
considering four different kinds of losses,
each with differing levels of uncertainty.
◆ Losses that have been incurred, report-
ed, and settled, but not yet paid. These losses
are the most certain of the four loss types.
Because the size of the ultimate loss has been
established, setting aside an accurate reserve
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
level is easiest here.
◆ Losses that have been incurred and re-
ported, but not settled. These carry a slightly
increased level of uncertainty. Here, the insurer
is aware that a loss has occurred, but final pay-
ment terms have not yet been established.
◆ Losses that have been incurred and re-
ported, but not settled, due to a liability. Be-
cause such losses usually involve longer-tail
liabilities, calculating the ultimate cost of set-
tlement is more difficult.
◆ Losses that have been incurred, but not
reported (IBNR). These losses carry the most
uncertainty. In some cases, insurers know
about IBNR losses and try to make prelimi-
nary loss estimates. For example, suppose an
earthquake hit a certain area on December
17
 30, and a local P/C insurer ends its fiscal
year on December 31. In its year-end state-
ments, the insurer could estimate its earth-
quake-related IBNR loss based on its
experience in prior earthquakes.
In other cases, however, IBNR losses
emerge years after the damage first occurs.
Such losses are very difficult to predict. For
example, the various asbestos lawsuits that
have recently plagued P/C insurers relate to
injuries incurred many years ago, but report-
ed much later.
...and calculating the loss reserves
Most insurance companies assign the task
of establishing appropriate loss reserve levels
to their actuarial staffs. Actuaries — special-
ists trained in mathematics, statistics, and ac-
counting — are responsible for calculating
premium rates, reserves, and dividends. They
use a variety of quantitative methods to es-
tablish loss reserves. The five most common-
ly used methods are the following:
◆ Claim-file estimates plus. This method
establishes the estimated liability for reported
losses by aggregating pending claim-file esti-
mates (such as estimates being prepared by
the claims department), from which pay-
ments that have already been made are de-
ducted. Added to this total are formula
calculations for additional payments on
closed claims that will be reopened for IBNR
losses. The sum of the component parts con-
stitutes the full loss liability as of the end of
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
the accounting period.
This method, considered the least sophisti-
cated, is appropriate for property lines in
which claim frequency is low and the range
of loss costs is sizable. Furthermore, its de-
pendence on claims department estimates ex-
poses it to a degree of subjectivity.
◆ Percentage of losses paid to date. Al-
though this method of extrapolating liability
from past percentages of losses paid is re-
garded as simple to apply, its use is limited to
coverages where payment patterns are rela-
tively consistent.
The percentage of losses paid to ultimate
incurred losses is calculated for various
stages of development for prior years. From
this history, percentages paid are selected for
each stage of development. The amount of
losses paid to date for the period under re-
18
view is then divided by the appropriate per-
centage, to arrive at the estimated ultimate
loss cost. The amount of losses paid to date
is subtracted from this figure to produce the
estimated loss liability.
◆ Counts and average costs of incurred
losses. This method indirectly establishes the li-
ability for losses from loss counts and average
costs. The projected number of loss units is ob-
tained from the number of loss units received
to date, based on percentages reported in prior
years at the same stage of development.
The average cost of loss units closed to
date is calculated and compared with average
closed costs of prior years at the same stage
of development. To arrive at the total esti-
mated ultimate loss, the estimated ultimate
average cost derived is multiplied by the pro-
jected ultimate number of loss units. Losses
paid to date are then subtracted to obtain the
estimated liability.
◆ Counts and average values of unpaid
losses. This method directly establishes the li-
ability from loss counts and average values
of unpaid losses. In this case, a selected aver-
age value is applied to the number of loss
units. If the data are based on reported loss-
es, the selected average value is applied to
the number of open loss units, and a separate
calculation for IBNR losses is necessary. If
the data are based on accidents incurred, the
selected average value is based on the total
number of open and IBNR losses.
◆ Loss ratio. This method estimates the
ultimate loss by using an estimated loss ra-
tio. Selected for whatever period of cover-
age is involved, the ratio is applied to the
applicable earned premiums, producing the
estimated ultimate losses incurred for that
period. Losses paid to date on accidents oc-
curring during the period are deducted
from this total to derive the estimated total
loss liability.
This overview illustrates the various meth-
ods used to quantify an insurer’s estimated li-
ability for losses as of the evaluation date.
Obviously, a great deal more detail and con-
siderable judgment are involved in applying
these methods. Furthermore, no single
method is ideal for all situations: which one
a particular insurer chooses will depend on
that company’s unique experience and prod-
uct mix. In fact, many companies use more
than one method to ensure a high degree of
accuracy and reliability.
For a more detailed discussion of the vari-
ous loss-reserving methods, Standard &
Poor’s recommends Property & Casualty In-
surance Accounting, published by the Insur-
ance Accounting and Systems Association.
Surplus funds: capital counts
After investment assets and loss reserves,
the third largest component of an insurer’s
balance sheet is policyholders’ surplus, anal-
ogous to shareholders’ equity. At December
31, 2006, the insurers in the ISO study had
an aggregate surplus of $487.1 billion, up
14.4% from the year-end 2005 surplus of
$425.8 billion.
Policyholders’ surplus is one of the indica-
tors that state regulators use to monitor and
control insurers’ solvency and growth. Indus-
try surplus (sometimes referred to as capital
or equity) appreciates or depreciates through
retained earnings or losses, unrealized gains
or losses from investment portfolios, and ad-
ditions to investors’ capital.
Typically, regulators permit insurers to
leverage their surplus to a certain extent, al-
lowing them to underwrite business equal to
two to three times the amount of their sur-
plus. Regulators tend to give insurers more
leeway on the short-tail property lines than
on the long-tail casualty lines, because of the
former’s relatively greater predictability of
underwriting performance.
Thus, as the industry has increased its ex-
posure to casualty lines, its leverage has de-
clined. Industry leverage also has declined in
response to reassessments of risk and because
of various factors contributing to overcapaci-
ty. (Industry surplus leverage is discussed fur-
ther in the “How to Analyze a Property-
Casualty Insurance Company” section of this
Survey.)
Two accounting methods used
P/C insurers generally account for their
surplus by using statutory accounting princi-
ples (SAP), which require them to expense
immediately all costs related to writing busi-
ness, rather than by using generally accepted
accounting principles (GAAP), which attempt
to match an insurer’s income and expenses
by prorating the costs of an insurance policy
over its assumed life.
Many insurers report their financial re-
sults using both accounting systems. They re-
port their results to regulators using SAP; for
investors, they use GAAP. (Many analysts,
however, also use SAP financial statements
when analyzing an insurer.) This difference
largely reflects the disparate priorities of
shareholders, investors, and regulators.
Shareholders and investors are likely to be
most interested in a company’s ability to earn
a profit, while regulators’ primary concern is
the company’s solvency — its ability to meet
policyholder obligations.
The primary difference between GAAP
and SAP lies in an accounting concept
known as the matching principle. Under
GAAP accounting, an insurer charges ex-
penses to the period in which they were
used to generate revenues. Under SAP ac-
counting, expenses are recognized as soon
as they occur.
For example, when an insurer uses SAP,
any expenses associated with writing an in-
surance policy — such as commissions and
other underwriting expenses — are immedi-
ately deducted from income. Under GAAP
accounting, these same charges are treated as
assets — referred to as deferred policy acqui-
sition costs — and are amortized over the in-
surance policy’s life. Hence, the more
conservative SAP emphasizes a company’s
solvency. An insurer’s income and surplus
tend to be lower under SAP than under
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
GAAP, which emphasizes the firm’s ongoing
profitability.
Forms of ownership
A P/C insurer’s ownership structure can
take one of two forms: a publicly held stock
insurance company or a mutual insurance
company owned by its policyholders. In ad-
dition, an insurance company can be struc-
tured as a hybrid mutual holding company.
◆ Stock insurance companies. As their
name implies, stock insurance companies are
owned by shareholders, who can buy or sell
shares in the public stock market. The capi-
tal of a stock insurance company is called
shareholders’ equity. Since these companies
are publicly held, they are required to file
quarterly financial reports with the Securities
19
 and Exchange Commission (SEC). Thus, ob-
taining timely financial information about
these companies is relatively easy.
As publicly owned companies, these insur-
ance companies are obligated to provide the
most favorable return on shareholders’ capi-
tal. Sometimes, this goal may conflict with
the interests of policyholders.
For example, a stockholder-owned insurer
may be under pressure to keep claim costs in
line in order to return a profit to its share-
holders. This scrutiny of claims, although
certainly legal, may not always be in the best
interest of the policyholder, who relies on the
insurer to promptly pay his or her claim.
◆ Mutual insurance companies. For mutu-
al insurance companies, in contrast, policy-
holders are the owners. A mutual insurance
company’s capital is called policyholders’ sur-
plus. Because these companies are owned by
their policyholders, they are not required to
publicly disclose financial information. Al-
though some mutual insurers distribute finan-
cial information to policyholders, obtaining
financial information about a mutual insurer
is more difficult.
◆ Mutual holding companies. In some in-
stances, insurance companies have formed
mutual holding companies to combine the
benefits of mutual ownership with those of
public ownership. In this case, the holding
company remains in the hands of the policy-
holders, while shares in the operating sub-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
sidiary are sold to the public. However, this
arrangement can lead to conflicting priori-
ties, as management seeks to please both pol-
icyholders, who prefer that the company
retain its capital to pay claims, as well as
shareholders, who prefer that management
use its capital to grow the business and pay
dividends.
Demutualization
The process by which a mutual insurance
company converts to a shareholder-owned
structure is called demutualization. In recent
years, some of the nation’s largest mutual in-
surers demutualized. Prudential Financial
Inc. completed its initial public offering in
December 2001. In April 2000, Metropolitan
Life Insurance Co. completed its demutual-
ization on the heels of John Hancock Finan-
cial Services Inc., which completed its
20
demutualization in January 2000. (Note:
Manulife Financial Corp. acquired John
Hancock Financial Services on April 28,
2004.)
The forces behind these high-profile de-
mutualizations differ from those that drove a
number of other companies, including The
Equitable, to demutualize in the late 1980s.
Back then, insurers needed access to the capi-
tal markets to sell equity and debt securities
in an attempt to boost their sagging capital
bases. At that time, many companies were
saddled with illiquid and underperforming
real estate loans and assets, which eroded the
strength of their capital bases and threatened
their solvency. They needed to raise capital in
order to survive.
The more recent spate of demutualiza-
tions was driven by insurers’ need to in-
crease their operating and financial
flexibility. One aspect of this is the ability
to issue stock. Although the merger and ac-
quisition boom of the late 1990s has
slowed considerably, the ability to acquire
another company through the issuance of
stock (the currency of choice in most deals)
is a critical success factor for many compa-
nies. Furthermore, in this era of rewarding
performance with stock options, many mu-
tual insurers believed they were at a disad-
vantage in recruiting and retaining top
management talent by not being able to of-
fer this benefit to employees.
Lines of coverage
Although P/C insurance is available on a
wide variety of coverages, several lines con-
stitute the bulk of industry premium volume,
as shown in the “Property/casualty industry’s
product-line distribution” chart.
◆ Automobile coverage. This is the largest
P/C line; it covers both physical (property)
damage and car owners’ liability. According
to Standard & Poor’s, this sector accounted
for approximately 37% of the industry’s net
written premium volume in 2006.
Automobile coverage (both personal and
commercial) has long dominated the indus-
try’s product mix. Its growth over the past
20 years has been fueled by the adoption of
mandatory automobile insurance in many
states and by escalating litigation and med-
ical care costs.
 ◆ Homeowners’ multi-peril. This is an-
other principal line of business for the P/C
insurance industry, accounting for some 12%
of written premium volume in 2006. Home-
owners’ insurance covers both the physical
damage to the insured property and the lia-
bility or legal responsibility arising from any
injuries and/or property damage that the pol-
icyholder may cause to other people. Dam-
age caused by most natural disasters is
covered, except that which is caused by
floods and earthquakes. A separate policy
usually is required to cover earthquake and
flood damage.
◆ Workers’ compensation. Another ma-
jor line of business for the P/C industry is
workers’ compensation, which accounted
for more than 9% of 2006 premium vol-
ume. This business line insures organiza-
tions that are required by state laws to
compensate employees who are injured or
disabled because of an occupational hazard.
It also helps compensate families of em-
ployees killed on the job.
During the 1960s and 1970s, the growth
in this business line was helped by changes in
certain state laws that increased mandated
coverage and by the general upgrading of
PROPERTY/CASUALTY INDUSTRY’S PRODUCT-LINE DISTRIBUTION
(In percent, by net premiums written)
2002
Private passenger
Other
premium 30.2% auto liability 21.9%
benefit levels. However, in the past several
years, this market has contracted as corpora-
tions and local governments have sought less
costly means of providing this coverage, such
as self-insuring. Some insurers have also
withdrawn from this line of business in re-
sponse to poor underwriting results.
◆ Other lines. The remaining 40% or so
of the market comprises a variety of types of
coverage, including homeowners’ multi-peril
coverage, commercial multi-peril coverage,
and an array of liability coverages.
Distribution: getting policies
to the people
Insurance companies distribute their person-
al and commercial policies through either di-
rect selling systems or agency systems. In a
direct selling distribution system, the insurance
company (sometimes referred to as a direct
writer) contacts its customers (“insureds”)
through its own employees. Within this frame-
work, the insurer sells policies through a num-
ber of outlets, including direct mail and
company-run agencies.
Under an agency system, the insurer con-
tracts outside agents to sell its policies in ex-
change for a commission. Some agents may
sell only a single insurer’s policies (“exclusive
agents”), while others (“independent
agents”) may offer policies from various in-
surance companies.
While there are advantages and disadvan-

JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

tages to both systems, the tradeoff is between
costs and control. A direct selling system can
Private passenger
auto physical be expensive to establish and operate, but it
damage 17.4%
Other liability/ gives an insurer more control over the distri-
occurence 5.0% bution process. The agency system reduces
Commercial Workers’ Homeowners the amount of control an insurer has over
multiple peril 6.8% compensation 8.1% multiple peril 10.7%
each aspect of the distribution system, but it
usually offers an established network
2006
Other through which the insurer can distribute its
premium 28.1.% Private passenger products. This is especially helpful to small
auto liability 21.2%
and regional insurers without the means to
Private passenger establish their own distribution network.
auto physical
damage 16.0%
Other liability/
Regulation and competition hold
occurence 5.9% insurers in line
Commercial Homeowners
multiple peril 7.1% Workers’ multiple peril 12.3%
compensation 9.3% The insurance industry is regulated on a
state-by-state basis. Each of the 50 states and
Source: Standard & Poor’s Ratings Services. the District of Columbia has an insurance
commissioner, who grants insurers operating

21
 CLASSIFICATION OF NET PREMIUMS — LEADING LINES FOR PROPERTY-CASUALTY INSURANCE COMPANIES
(Premiums written, in millions of dollars and as a percentage of total)

PRIVATE PASSENGER AUTO HOMEOWNERS’ WORKERS’ COMMERCIAL OTHER OTHER TOTAL NET % CHG IN
AUTO LIABILITY PHYS. DAMAGE MULTIPLE PERIL COMPENSATION MULTIPLE PERIL LIABILITY/OCCURRENCE PREMIUMS PREMIUMS PREMIUMS
YEAR WRITTEN % WRITTEN % WRITTEN % WRITTEN % WRITTEN % WRITTEN % WRITTEN % WRITTEN WRITTEN

2006 94,430 21.2 71,318 16.0 54,781 12.3 41,528 9.3 31,691 7.1 26,440 5.9 124,873 28.1 445,061 3.6
2005 94,853 22.1 71,880 16.7 52,471 12.2 39,807 9.3 29,643 6.9 23,846 5.6 116,945 27.2 429,446 0.5
2004 92,954 21.7 71,920 16.8 49,607 11.6 36,710 8.6 29,109 6.8 24,869 5.8 122,211 28.6 427,380 4.4
2003 89,291 21.8 69,122 16.9 45,768 11.2 33,145 8.1 27,418 6.7 21,999 5.4 122,465 29.9 409,208 9.3
2002 82,141 21.9 64,991 17.4 40,033 10.7 30,190 8.1 25,420 6.8 18,532 5.0 113,040 30.2 374,347 NA

NA-Not available.
Source: Standard & Poor’s Ratings Services.

licenses to let them conduct business within
that state.
State regulators serve three primary
functions. First, they monitor the financial
condition and claims-paying ability of each
insurance company operating in their state.
Second, they serve as consumer watchdogs,
ensuring that policyholders are not over-
charged or discriminated against. Finally,
regulators try to ensure that essential insur-
ance coverage is readily available to all
consumers.
The National Association of Insurance
Commissioners (NAIC), based in Kansas
City, Missouri, coordinates the activities of
state insurance commissioners. Founded in
1871 as the National Convention of Insur-
ance Commissioners, the NAIC undertook
the formulation of uniform accounting pro-
cedures as one of its first actions. Today,
one of the NAIC’s main functions is to de-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
petition helps keep pricing in line and pre-
vents any one participant from becoming too
powerful.
KEY INDUSTRY RATIOS
AND STATISTICS
For purposes of formulating industry-
wide benchmarks in this portion of the
Survey, we define the property-casualty in-
surance industry as comprising the compa-
nies that report their operating statistics to
the National Association of Insurance
Commissioners; these statistics are then
compiled by Standard & Poor’s. There
were approximately 1,130 such companies
in 2006.

Return on assets (ROA). This is a mea-
sure of profitability; it is equal to net income

velop and improve insurance reporting and
accounting standards and practices. These
actions are intended to improve state regu-
lators’ knowledge of the financial condition
of insurers in their jurisdiction.
Insurance companies are required to file a
set of financial statements each year with
regulators in every state in which they oper-
ate. These records, called annual statements,
use statutory accounting terms to outline the
company’s profits, losses, and overall finan-
cial condition.
Other forms of regulation and control
also govern the insurance industry. For in-
stance, publicly held insurance companies —
those that issue stock — are subject to regu-
lation by the SEC.
Finally, the intense level of competition
among industry participants in all lines also
usually serves as a measure of control. Com-
divided by average total assets. The ROA for
most property-casualty insurers typically
ranges from 2.0% to 5.0%. In 2006, proper-
ty-casualty insurers tracked by Standard &
Poor’s posted an average ROA of 4.6%, up
from 3.3% in 2005.

Return on equity (ROE). Usually con-
sidered in tandem with ROA, ROE is another
measure of profitability. For a stockholder-
owned insurance company, ROE is calculat-
ed by dividing net income by average share-
holders’ equity.
To calculate the ROE for the entire
property-casualty insurance industry (which
includes mutual insurance companies), the
denominator in this equation would be poli-
cyholders’ surplus. Policyholders’ surplus is a
statutory accounting term that is generally
analogous to shareholders’ equity. The return

22
US PROPERTY/CASUALTY COMBINED RATIOS
140
Commercial lines
120
Personal lines
100
80
60
40
20
0 (policyholder dividends divided by earned
1998 99 00 01 02 03 04
Source: Insurance Services Office.
on equity/surplus for property-casualty insur-
ers can range from under 5% to about 18%.
Most insurers strive to earn an ROE of 12%
to 15%.

Net investment yield. This measure of
investment performance is typically calculat-
ed as net investment income divided by av-
erage invested assets. Investment yields
typically fall within a range of 4% to 12%,
though they can be lower than or well
above that range, depending on the mix of
invested assets in an insurer’s portfolio. For
the property-casualty industry, the average
yield on invested assets was 4.6% in 2006,
up from 4.4% in 2005, according to figures
compiled by Standard & Poor’s.
The next two ratios, which measure un-
derwriting performance, are derived from
data published quarterly by Insurance Ser-
vices Office Inc. (ISO), an industry research
and data collection organization.

Net premiums written to surplus. This
ratio measures the extent to which the indus-
try (or an insurer) has leveraged its capital to
write business. Sometimes referred to as a
measure of capacity utilization, it is equal to
net written premiums divided by policyhold-
ers’ surplus.
Typically, regulators permit an insurer to
have a ratio of net written premiums to sur-
plus of 2-to-1. In other words, insurers would
be permitted to write $2 in premiums for
every $1 in capital. Because premium rates for
many lines of business declined in 2006, the
industry remained underleveraged. At Decem-
ber 31, 2006, the ratio of net written premi-
ums to policyholders’ surplus was 0.91-to-1.
In other words, the industry wrote $0.91
worth of premiums for every $1.00 in capital.

Combined ratio. A key measure of un-
derwriting performance, the combined ratio
is calculated by adding three figures: the loss
ratio (losses plus loss adjustment expenses,
divided by earned premiums), the expense ra-
tio (other underwriting expenses divided by
written premiums), and the dividend ratio
05 2006 premiums). A combined ratio of 100% or
less indicates an underwriting profit; in ex-
cess of 100%, it signals an underwriting loss.
A typical range for combined ratios is
100% to 110%. The loss ratio usually
ranges from 60% to 80%, and the expense
ratio from 25% to 35%. The dividend ratio
usually ranges from 1.0% to 2.0%.
Companies strive to earn a profit from
underwriting, but only a small percentage of
them actually achieve this goal. According to
a study by the ISO, between 1952 and 1998,
the industry earned a profit from underwrit-
ing — and achieved a combined ratio below
100% — in just 15 of those 47 years. Until
2004, the last time this happened was in
1978, when the industry’s combined ratio
equaled 97.5%. In 2006, the industry again
produced a combined ratio below 100%.
For the 12 months ended December 31,
2006, the industry’s combined ratio was
92.4%, according to ISO. This improvement
from 100.9% in the year ended December
31, 2005, reflected the steep decline in cata-
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
strophe losses. The combined ratio for 2006
consisted of a loss ratio of 65.1% (versus
74.6% in 2005), an expense ratio of 26.5%
(25.8% in 2005), and a dividend ratio of
0.8% (0.4% in 2005).
HOW TO ANALYZE A PROPERTY-
CASUALTY INSURANCE COMPANY
When analyzing a property-casualty (P/C)
insurer, consider three central points: its
profitability, or ability to make money; its
liquidity, or ability to convert assets into cash
to pay claims and meet other expenses; and
its leverage, or the extent to which it uses its
capital to produce business.
As with the markets for most other goods
and services, the P/C insurance market func-
tions within supply and demand curves. De-
23
 PREMIUM VOLUME AND UNDERWRITING RATIOS
FOR THE TOTAL US PROPERTY-CASUALTY INDUSTRY
NET
PREMIUMS ‡LOSS †EXPENSE
WRITTEN RATIO RATIO
YEAR (MIL. $) (%) (%)
2006 445,061 65.2 26.4
2005 429,446 74.5 25.9
2004 427,380 72.8 25.3
2003 409,208 74.7 25.0
2002 374,347 81.1 25.5
‡Incurred to premiums earned. †Incurred to premiums written.
Source: Standard & Poor’s Ratings Services.
mand for insurance is fairly stable and in-
elastic: it is influenced by growth in the econ-
omy (as measured by gross domestic
product), the inflation rate, and the need to
protect assets. The supply curve, however,
moves primarily with interest rates.
Pricing moves inversely
with interest rates
Theoretically, when interest rates rise, insur-
ers are willing to provide more insurance at
the same price, because each premium dollar
generates more investment income for the in-
surer. Thus, insurance prices decline until addi-
tional demand is stimulated or until it becomes
unprofitable to provide coverage, prompting
insurers to withdraw. Either way, supply and
demand are brought back into balance.
The fundamental relationship between in-
surance pricing and interest rates, therefore,
is that prices increase when interest rates fall,
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
and they decline when interest rates rise. The
magnitude of changes in price varies with the
magnitude of changes in interest rates.
Price and premium growth levels also are
influenced by competitive pressures within
the industry and by each firm’s capacity to
underwrite. The industry is competitive and
has relatively few barriers to entry, so com-
panies tend to overreact to interest rate
changes, either overpricing or underpricing
as situations warrant. In recent years, howev-
er, this theory did not match reality. During a
period of historically low interest rates, in-
surance pricing remained competitive. This is
largely attributable to an oversupply of un-
derwriting capacity, or capital, that remained
within the insurance marketplace.
Prospects for inflation also play an impor-
tant role in insurance prices. If claim costs
are expected to rise because of inflation, a
24
higher level of income will be needed to cov-
er these potentially higher costs in the future.
Thus, insurance companies must incorporate
COMBINED
RATIO estimates of future inflation into their pricing
(%)
structures.
92.4
When there is a wide range of inflation
100.8
98.5
expectations, companies with lower-than-
100.1 average estimates of future inflation may of-
107.1 fer their products for below-average prices.
Of course, insurers often can garner market
share when their policies are priced below
those of their competitors. Therefore, overall
price trends tend to move toward the levels set
by companies with a less inflationary outlook.
Predicting profits
Two broad measures of profitability that
are applicable to P/C insurance companies
are return on assets (ROA) and return on eq-
uity (ROE). ROA is net income divided by
average total assets. A typical range of ROAs
for the P/C insurance industry is somewhere
between 0.5% and 2.0%, with the average
somewhere around 1.5%. ROE is calculated
by dividing the insurer’s net income by aver-
age shareholders’ equity. Most insurers strive
to achieve an ROE of at least 15%.
A P/C insurer’s profitability depends pri-
marily on two components: underwriting in-
come and investment income. Following, we
discuss each of these components of an in-
surer’s operating income.
Principles of underwriting
The first element to consider when analyz-
ing underwriting results is the rate of written
premium growth. It should be compared
with industry data to judge how a company
stacks up against its peers.
Pay careful attention to the circumstances
surrounding the rate of premium growth. For
example, if a company expands its written
premium base at 10% a year while the over-
all industry is growing at 6% a year, that
company would appear to be outperforming
its peer group. Presumably, the stock market
would award that firm a higher valuation
than some of its slower-growing counterparts
would enjoy. However, if the insurer is
achieving premium growth by following
risky underwriting standards — such as un-
derpricing policies to gain market share or
writing a great deal of business in a high-risk
coverage line avoided by other insurers —
the insurer’s valuation would have to be ad-
justed downward.
Conversely, a company growing its pre-
mium base at a rate slower than the overall
industry could be doing so because it is
limiting its exposure to an unattractive
class of business. For example, a number
of insurers have reduced their exposure to
workers’ compensation insurance in re-
sponse to that line’s adverse claim trends.
These insurers may have posted minimal
written premium growth in recent years,
but many have seen their profitability im-
prove after purging these loss-laden busi-
ness lines.
Another factor that affects a company’s
premium growth rate is the extent to which
an insurer uses reinsurance, which is the
practice of transferring some of its risk —
and premium income — to reinsurance
companies. In an attempt to offset slowing
premium growth, an insurer might reduce
the level of premiums that it cedes to rein-
surers. Using less reinsurance lets an insurer
keep more of each premium dollar, so a re-
duced level of reinsurance may enhance
year-to-year premium growth comparisons.
At the same time, using less reinsurance re-
moves the protection it affords, potentially
exposing the primary insurer to a large fi-
nancial claim.
◆ The combined ratio. To evaluate an in-
surer’s underwriting performance, many ana-
lysts use a statistical measure called the
combined ratio. This ratio equals the sum of
the loss ratio, the expense ratio, and the divi-
dend ratio, which are described following. A
combined ratio below 100% indicates an un-
derwriting profit; one above 100% means an
insurer has incurred an underwriting loss.
Unless otherwise stated, most companies cal-
culate these ratios using statutory accounting
principles.
◆ The loss ratio. The loss ratio measures
claims cost experience. It is derived by divid-
ing losses and loss adjustment expenses by
earned premiums. It typically ranges from
60% to 80%, but it can soar during a period
of heavy catastrophe losses.
◆ The expense ratio. The expense ratio
measures how cost-effectively an insurer
writes new business. It is derived by dividing
operating expenses by written premiums. It
typically ranges from 25% to 35%.
◆ The dividend ratio. The dividend ratio,
the smallest component of the combined ra-
tio, is obtained by dividing policyholders’
dividends by earned premiums. It typically
ranges from 1% to 2%. (The combined ratio
often is presented excluding the dividend ra-
tio. This is the case in the “Underwriting ex-
perience” and “Premium volume and
underwriting ratios” tables.)
Playing the investment field
Investment income is an important source
of profits for P/C insurers. Theoretically, invest-
ment income should be used to provide finan-
cial protection against unforeseen and unantici-
pated underwriting losses. Many insurers,
however, have come to rely on investment in-
come to remain profitable. When evaluating an
insurer’s investment portfolio, analysts review a
company’s asset allocation strategy, making
sure its mix of invested assets is appropriate for
the type of business it writes.
For most P/C insurers, this process is fair-
ly straightforward: the typical P/C insurer
maintains most of its invested assets in rela-
tively liquid fixed-income or equity securities
that are converted easily into cash. This is
because most P/C insurance claims are settled
in a relatively short amount of time. Within
each asset class, such as stocks or bonds, a
review of asset quality and diversification is
necessary. To help in the analysis of asset
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
quality, insurers usually provide the debt rat-
ing of bonds in their portfolio or an average
debt rating for their entire portfolio.
Two important ratios used in analyzing
investment results are the investment yield
and the total return on the portfolio. Invest-
ment yield is usually calculated as the net in-
vestment income during a certain time
period, divided by the portfolio’s average val-
ue during the same period. Total return is
usually calculated as net investment income
plus or minus realized and unrealized gains,
divided by beginning market value of the
portfolio, plus or minus the weighted average
of additions or dispositions.
Cash flow and liquidity
Liquidity is another key benchmark for
analyzing a P/C insurer, because of the insur-
25
 er’s need to pay claims promptly. An insurer’s information, and the Insurance Services Of-
sources of liquidity arise from underwriting fice, an industry research and data collection
cash flow, investment cash flow, and asset organization, the ratio of net written premi-
liquidation cash flow. All of these are consid- ums to policyholder surplus was 0.91-to-1 at
ered internal sources because they are gener- December 31, 2006, versus 1.00-to-1 at De-
ated by the insurer’s operations. cember 31, 2005, and 1.08-to-1 at December
Because of the somewhat unpredictable 31, 2004 — both of which were down slight-
nature of the P/C insurance business, cash ly from 1.17-to-1 at December 31, 2003. ■
flow from underwriting activities is probably
the most volatile element of an insurer’s total
cash flow. Nevertheless, the underwriting
cash flow for most insurers is usually posi-
tive; when combined with the cash flow from
investment activities, most insurers end up
with a substantial positive cash flow.

Looking at leverage

For P/C insurers, leverage refers to how the

company uses its surplus, or capital, to write
policies. The ratio of net written premiums to
policyholders’ surplus is usually a good indica-
tor of the industry’s capacity utilization.
Historically, insurers leveraged their sur-
plus by a multiple of two to three, depending
on the types of business they underwrote.
For example, an insurer with $10 million of
surplus could probably write $20 million to
$30 million of annual premiums. Regulators
tend to give insurers more leeway in surplus
leverage on shorter-tail property lines of cov-
erage than on longer-tail liability lines, be-
cause the former have greater predictability.
(The terms “short-tail” and “long-tail” refer
to the time between the occurrence of a
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

claim and its settlement; short-tail claims

usually can be settled more quickly than
long-tail claims.)
Thus, as the industry’s exposure to casual-
ty lines has increased, surplus leverage has
decreased. Overcapacity in the insurance
business also has caused surplus leverage to
decline, as have strong investment returns.
Thus, while regulators still may use a 2-to-1
leverage of surplus as a benchmark, this
benchmark has to be considered against a
backdrop of industrywide “underleverage.”
In fact, industry leverage has been less than
1-to-1 for much of the last 15 years. Industry
leverage increased somewhat in the after-
math of the September 2001 terrorist attacks
and back-to-back record hurricane seasons in
2004 and 2005.
Based on data obtained from A.M. Best, a
provider of insurance company ratings and

26
G LOSSARY
Acquisition cost — The amount of money paid by an in-
surance company for new policies that it under-
writes or for the purchase of another block of
business; it includes commissions to agents and bro-
kers and, in some cases, field supervision expenses.
Actuary — An insurance professional whose job is to
estimate statistical risks, set premium levels, and an-
alyze other technical aspects of insurance.
Administrative services only (ASO) agreement — An
agreement under which an insurer provides a client
with such services as actuarial work, benefit plan
design, claims processing, financial advice, and re-
port preparation. The client typically accepts the un-
derwriting risk or self-insures.
Agent — A person who sells insurance policies as a
representative of the insurer. An independent agent
represents two or more underwriters, while an ex-
clusive agent may be an employee or commissioned
representative of a single company.
Broker — A producer that deals with either agents or
underwriting companies to arrange insurance cover-
age for clients. Legally, a broker represents the buy-
er of insurance rather than the underwriting
company.
Capacity — The level of underwriting business an in-
surer can support, based on its ability or willingness
to accept risks, with certain protection limits.
Captive insurer — An insurance organization estab-
lished by an entity to insure its own risks.
Catastrophe — An incident or series of related inci-
dents causing insured losses of $25 million or more.
Cede — The transfer of part of an insurer’s liability to a
reinsurance company. The insurer “cedes” its liabili-
ty; the reinsurer “assumes” the liability.
Combined ratio — A financial measure of underwriting
performance used in the insurance industry; it is the
sum of the loss ratio, the expense ratio, and the divi-
dend ratio. A combined ratio of less than 100% gen-
erally indicates an underwriting profit, while a ratio
in excess of 100% indicates an underwriting loss.
Convention statement — Documents filed with state in-
surance departments detailing the financial statistics
of individual insurance companies. Convention state-
ments are prepared using statutory accounting prin-
ciples, rather than generally accepted accounting
principles.
Dividend ratio — Policyholders’ dividends as a percent-
age of earned premiums. It is a component of the
combined ratio.
Earned premium — Portion of a premium for which
the insurer already has provided protection to the
policyholder.
Expense ratio — Operating expenses as a percentage
of premiums written, calculated on a statutory basis.
It measures an insurer’s efficiency in writing new
business and is a component of the combined ratio.
Finite reinsurance — A broad term used to describe
reinsurance transactions that include limited trans-
fer of risk; can also refer to financial reinsurance, or
the transfer of a known loss, with the only uncertain-
ty being the timing of the loss payment.
Generally accepted accounting principles (GAAP) —
An accounting method that, among other things, at-
tempts to match income and expenses by prorating
costs over the assumed life of an insurance policy.
The GAAP method is used in the audited financial
statements of publicly held companies. (See Statuto-
ry accounting principles.)
Insurance examiner — A state insurance department
representative assigned to participate in the official
audit and examination of insurance companies.
Insurance in force — The potential maximum claim
against an insurer.
Loss ratio — An insurer’s loss and loss adjustment ex-
penses as a percentage of premiums earned, calcu-
lated on a statutory basis. A component of the
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY
combined ratio, it is a measure of an insurer’s claims
cost experience.
Managing general agent (MGA) — A special type of
producer that, unlike other persons or firms selling
insurance, often has “binding authority” in certain
insurance and reinsurance markets. MGAs have
contractual agreements whereby they can accept
entire books of business on behalf of insurance and
reinsurance underwriters.
Mutual insurance company — An incorporated insur-
ance organization with a governing body elected by
policyholders. Mutual insurance companies general-
ly issue participating policies.
Net operating income — After-tax income before net
realized investment gains or losses. Analysts most
commonly use this measure of insurer profitability
when modeling future earnings of an insurer.
27
 Net premiums written — Premium income brought in by
insurance companies, directly or through reinsur-
ance, minus payments made for business reinsured.
Nonparticipating policy — An insurance policy in which
the insurer does not distribute any part of its surplus
to policyholders. Premiums are usually lower for
nonparticipating policies than for comparable partic-
ipating policies.
Participating policy — An insurance policy under which
the insurer agrees to distribute to its policyholders
the portion of its surplus that management does not
deem necessary to retain. Such a distribution serves
to reduce the premiums that each policyholder has
paid during the year.
Policy reserves — The funds that an insurer holds
specifically for the fulfillment of its policy obligations.
Premium — The payment, or one of the periodic pay-
ments, that a policyholder agrees to make for an in-
surance policy.
Stock insurance company — An insurance company
owned by its stockholders, who elect a board to di-
rect the firm’s management. In general, stock com-
panies issue nonparticipating insurance, but they
may also issue participating policies.
Surplus lines — Generally, a risk for which no normal
insurance market exists.
Terrorist insurance — Coverage that can be added to a
property insurance program to provide protection
against destruction of property by terrorists.
Underwriting profit/loss — Profits or losses of an insur-
ance company that result from insurance activities,
calculated on a statutory basis. A net underwriting
profit or loss represents underwriting results after
policyholder dividends are deducted.
War risks insurance — Coverage on ships or cargo
against loss or damage by enemy action and against
damages sustained in fighting such an action. The
perils of war are excluded from most policies.

Premium loan — A policy loan made for the purpose of

paying premiums.

Primary insurer — An insurance company that, either

through an independent insurance agent or a broker,
provides coverage in the outside market. The buyers
of primary insurance are consumers.

Producer — A person or firm that sells insurance. A

producer may be an agent or a broker.

Reinsurance — Coverage that a primary insurer (or

“reinsured”) purchases from another company to
protect itself from losses beyond a dollar amount it
feels can be safely carried. This amount is normally
called the reinsured’s “net line.” The reinsurance
company can, in turn, reinsure through a process
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

known as retrocession.

Reserves — Funds that an insurer sets aside to cover

obligations to policyholders; the amount may repre-
sent both actual and potential liabilities.

Rider — A special provision or group of provisions that

may be added to a policy to expand or limit the bene-
fits otherwise payable.

Statutory accounting principles (SAP) — An accounting

format used by state insurance regulators. As op-
posed to the generally accepted accounting princi-
ples (GAAP) method, statutory accounting is
essentially cash-oriented (rather than accrual) and
has such requirements as immediately expensing all
costs related to writing business. More conservative
than GAAP, SAP focuses on a firm’s ability to meet its
obligations (its solvency), whereas GAAP focuses on
profit growth.

28
I NDUSTRY R EFERENCES

PERIODICALS COMPANY REPORTS

Aggregates & Averages: Property-Casualty ACE Limited

Best’s Review Web site: http://www.acelimited.com
BestWeek
A.M. Best Co. Inc. Allstate Corp.
Ambest Rd., Oldwick, NJ 08858 Web site: http://www.allstate.com
(908) 439-2200
Web site: http://www.ambest.com Ambac Financial Group Inc.
The first is an annual that provides financial and under- Web site: http://www.ambac.com
writing data on the entire property-casualty insurance
industry; the other two are monthly and weekly publica- American International Group
tions, respectively, that cover topics and issues in the Web site: http://www.aig.com
property-casualty insurance industry.
The Chubb Corp.
Business Insurance Web site: http://www.chubb.com
Crain Communications Inc.
360 N. Michigan Ave., Chicago, IL 60601 Cincinnati Financial Corp.
(312) 649-5200 Web site: http://www.cinfin.com
Web site: http://www.businessinsurance.com
Weekly; covers corporate risk, employee benefit, and CNA Financial Corp.
managed healthcare news. Web site: http://www.cna.com

National Underwriter (Property/Casualty edition) Hartford Financial Services Group

The National Underwriter Co. Web site: http://www.thehartford.com
33-41 Newark St., 2nd Fl., Hoboken, NJ 07030
(201) 526-1230 MBIA Inc.
Web site: http://www.nunews.com/pandc Web site: http://www.mbia.com
Weekly newspaper; covers issues related to the
property-casualty insurance market. Progressive Corp.
Web site: http://www.progressive.com
BOOKS
SAFECO Corp.
Glossary of Insurance Terms, 2nd Ed. Web site: http://www.safeco.com
Richard V. Rupp, CPCU
Chatsworth, Calif.: NILS Publishing Co., 1996 The Travelers Companies Inc.
Web site: http://www.travelers.com

JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

Property & Casualty Insurance Accounting, 8th Ed.
Insurance Accounting & Systems Association, 2003 XL Capital Ltd.
3511 Shannon Rd., Ste. 160, Durham, NC 27707 Web site: http://www.xlcapital.com
(919) 489-0991
Web site: http://www.iasa.org

TRADE ASSOCIATIONS

Insurance Information Institute (III)

110 William St., New York, NY 10038
(212) 346-5500
Web site: http://www.iii.org
Nonprofit, industry-supported organization that pro-
vides information about the property-casualty insur-
ance industry.

Insurance Services Office Inc. (ISO)

545 Washington Blvd., Jersey City, NJ 07310
(800) 888-4476; (201) 469-2000
Web site: http://www.iso.com
Trade organization and publisher of aggregate industry
underwriting statistics.

29
 D EFINITIONS FOR C OMPARATIVE C OMPANY A NALYSIS TABLES

Operating revenues Tangible book value per share

Net sales and other operating revenues. Excludes
interest income if such income is “nonoperating.”
Includes franchised/leased department income for
retailers and royalties for publishers and oil and mining
companies. Excludes excise taxes for tobacco, liquor,
and oil companies.
Net income
Profits derived from all sources, after deductions of
expenses, taxes, and fixed charges, but before any
discontinued operations, extraordinary items, and
dividend payments (preferred and common).
This measure indicates the theoretical dollar amount
per common share one might expect to receive should
liquidation take place. Generally, book value is
determined by adding the stated (or par) value of the
common stock, paid-in capital, and retained earnings,
then subtracting intangible assets, preferred stock at
liquidating value, and unamortized debt discount. This
amount is divided by the number of outstanding shares
to get book value per common share.
Share price
This shows the calendar-year high and low of a stock’s
market price.

Return on revenues
Net income divided by operating revenues.
Return on assets
Net income divided by average total assets. Used in
industry analysis and as a measure of asset-use
efficiency.
Return on equity
Net income, less preferred dividend requirements,
divided by average common shareholder‘s equity.
Generally used to measure performance and to make
industry comparisons.
In addition to the footnotes that appear at the bottom of
each page, you will notice some or all of the following:
NA—Not available.
NM—Not meaningful.
NR—Not reported.
AF—Annual figure. Data are presented on an annual
basis.
CF—Combined figure. In this case, data are not available
because one or more components are combined with
other items.

Price/earnings ratio
The ratio of market price to earnings, obtained by
dividing the stock’s high and low market price for the
year by earnings per share (before extraordinary items).
It essentially indicates the value investors place on a
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

company’s earnings.

Dividend payout ratio

This is the percentage of earnings paid out in dividends.
It is calculated by dividing the annual dividend by the
earnings. Dividends are generally total cash payments
per share over a 12-month period. Although payments are
usually calculated from the ex-dividend dates, they may
also be reported on a declared basis where this has been
established to be a company’s payout policy.

Dividend yield
The total cash dividend payments divided by the year’s
high and low market prices for the stock.

Earnings per share

The amount a company reports as having been earned
for the year (based on generally accepted accounting
standards), divided by the number of shares outstanding.
Amounts reported in Industry Surveys exclude
extraordinary items.

30
 C OMPARATIVE C OMPANY A NALYSIS — I NSURANCE : P ROPERTY-C ASUALTY
Operating Revenues
Million $ Compound Growth Rate (%) Index Basis (1996 = 100)
Ticker Company Yr. End 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 2002
PROPERTY CASUALTY‡
ACE * ACE LTD DEC 13,351.0 A 13,088.0 12,320.6 10,689.7 7,123.0 6,644.7 849.0 A 31.7 15.0 2.0 1,573 1,542 1,451 1,259 839
ALL * ALLSTATE CORP DEC 35,796.0 35,383.0 33,936.0 32,149.0 29,579.0 28,865.0 A 24,299.0 4.0 4.4 1.2 147 146 140 132 122
ABK * AMBAC FINANCIAL GP DEC 1,811.0 C 1,652.1 1,398.5 1,256.2 D 965.3 724.5 288.7 20.2 20.1 9.6 627 572 484 435 334
BER † BERKLEY (W R) CORP DEC 5,394.8 4,996.8 4,512.2 C 3,630.1 2,566.1 1,941.8 1,225.2 16.0 22.7 8.0 440 408 368 296 209
CB * CHUBB CORP DEC 13,969.0 14,053.1 13,152.5 11,461.0 9,115.6 7,739.9 5,668.1 D,F 9.4 12.5 (0.6) 246 248 232 202 161

CINF * CINCINNATI FINANCIAL CORP DEC 3,903.0 3,767.0 3,614.0 3,181.0 2,843.0 2,561.0 1,808.7 8.0 8.8 3.6 216 208 200 176 157
CGI † COMMERCE GROUP INC/MA DEC 1,949.5 1,884.4 1,806.6 1,640.8 1,257.1 1,153.8 748.3 10.0 11.1 3.5 261 252 241 219 168
FNF † FIDELITY NATIONAL FINANCIAL DEC 9,436.1 A 6,315.9 5,889.4 5,970.7 NA NA NA NA NA 49.4 ** ** ** ** NA
FAF † FIRST AMERICAN CORP/CA DEC 8,459.7 7,999.4 6,660.2 6,140.8 4,660.9 3,750.7 F 1,596.5 A 18.1 17.7 5.8 530 501 417 385 292
THG † HANOVER INSURANCE GROUP INC DEC 2,644.1 D 2,624.3 D 3,111.0 3,263.6 3,316.6 C 3,311.8 3,279.5 (2.1) (4.4) 0.8 81 80 95 100 101

IPCC § INFINITY PROPERTY & CAS CORP DEC 1,021.3 1,053.3 950.9 762.3 704.5 990.0 NA NA 0.6 (3.0) ** ** ** ** NA
LFG § LANDAMERICA FINANCIAL GP DEC 4,015.9 A 3,959.6 3,522.1 3,406.0 A 2,586.6 2,170.5 594.2 21.1 13.1 1.4 676 666 593 573 435
MBI * MBIA INC DEC 2,680.5 D 2,265.5 2,049.8 D 1,760.5 1,223.4 1,137.8 545.5 F 17.3 18.7 18.3 491 415 376 323 224
MCY † MERCURY GENERAL CORP DEC 3,168.7 2,991.9 2,668.2 2,265.5 1,786.3 1,507.0 825.0 A 14.4 16.0 5.9 384 363 323 275 217
ORI † OLD REPUBLIC INTL CORP DEC 3,794.2 3,805.9 3,491.6 3,285.7 2,756.4 2,373.4 1,803.9 7.7 9.8 (0.3) 210 211 194 182 153

PHLY § PHILADELPHIA CONS HLDG CORP DEC 1,253.8 1,051.4 818.9 619.6 456.2 332.5 80.5 31.6 30.4 19.2 1,557 1,306 1,017 770 567
PRA § PROASSURANCE CORP DEC 737.6 A,C 645.3 A,C 794.6 709.6 555.8 382.6 139.4 18.1 14.0 14.3 529 463 570 509 399
PGR * PROGRESSIVE CORP-OHIO DEC 14,774.5 F 14,291.3 F 13,768.2 F 11,880.5 F 9,282.9 F 7,475.5 F 3,472.3 15.6 14.6 3.4 425 412 397 342 267
RLI § RLI CORP DEC 616.5 569.3 578.8 519.9 382.2 309.4 155.4 C 14.8 14.8 8.3 397 366 373 335 246
SAF * SAFECO CORP DEC 6,121.2 6,351.1 6,195.4 D 7,503.7 7,065.1 6,862.5 D 3,965.4 4.4 (2.3) (3.6) 154 160 156 189 178

SAFT § SAFETY INSURANCE GROUP INC DEC 680.7 671.5 636.4 591.8 529.3 483.3 A NA NA 7.1 1.4 ** ** ** ** NA
SKP § SCPIE HOLDINGS INC DEC 143.9 F 151.5 F 157.3 F 187.0 F 338.5 278.4 173.4 (1.8) (12.4) (5.0) 83 87 91 108 195
SIGI § SELECTIVE INS GROUP INC DEC 1,807.9 1,671.0 D 1,571.5 1,356.1 1,178.9 1,059.0 D 799.0 8.5 11.3 8.2 226 209 197 170 148
STC § STEWART INFORMATION SERVICES DEC 2,467.1 2,423.6 2,176.1 2,236.7 1,776.3 1,270.2 343.1 21.8 14.2 1.8 719 706 634 652 518
TWGP § TOWER GROUP INC DEC 299.3 219.8 107.7 74.7 62.7 NA NA NA NA 36.2 ** ** ** ** NA

TRV * TRAVELERS COS INC DEC 25,048.0 24,365.0 D 22,934.0 A 15,139.2 14,269.7 12,231.0 8,197.0 A 11.8 15.4 2.8 306 297 280 185 174
UFCS § UNITED FIRE & CAS CO DEC 635.6 619.6 608.1 573.3 510.9 473.0 300.3 7.8 6.1 2.6 212 206 203 191 170
XL * XL CAPITAL LTD DEC 9,564.2 11,130.6 9,904.5 7,883.1 6,513.4 3,976.2 A 922.7 26.3 19.2 (14.1) 1,037 1,206 1,073 854 706
ZNT § ZENITH NATIONAL INSURANCE CP DEC 1,063.9 1,280.1 1,044.9 849.3 D 602.2 D 622.0 556.4 A 6.7 11.3 (16.9) 191 230 188 153 108
REINSURANCE‡
RE † EVEREST RE GROUP LTD DEC 4,517.3 4,555.1 5,008.7 4,106.7 2,557.6 1,801.5 1,169.3 14.5 20.2 (0.8) 386 390 428 351 219
MULTI-LINE GROUP‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 4,226.5 D 4,038.3 3,906.3 3,339.8 D 3,751.1 3,923.6 4,132.4 0.2 1.5 4.7 102 98 95 81 91
AIG * AMERICAN INTERNATIONAL GROUP DEC 113,489.0 F 108,340.0 C,F 96,831.0 81,303.0 67,482.0 62,402.0 A,C 28,105.9 15.0 12.7 4.8 404 385 345 289 240
AIZ * ASSURANT INC DEC 7,963.2 7,455.2 7,355.1 6,997.9 6,441.7 6,056.9 A NA NA 5.6 6.8 ** ** ** ** NA
GNW * GENWORTH FINANCIAL INC DEC 11,029.0 A 10,504.0 11,017.0 A 11,671.0 A,C NA NA NA NA NA 5.0 ** ** ** ** NA
HIG * HARTFORD FINANCIAL SERVICES DEC 26,500.0 27,083.0 22,693.0 18,733.0 15,907.0 15,147.0 A 12,473.0 7.8 11.8 (2.2) 212 217 182 150 128

HCC † HCC INSURANCE HOLDINGS INC DEC 2,075.3 A,F 1,642.7 A,F 1,283.2 A,F 942.0 D,F 669.4 A,F 505.5 A,F 182.5 A 27.5 32.6 26.3 1,137 900 703 516 367
HMN † HORACE MANN EDUCATORS CORP DEC 873.8 869.4 878.3 866.2 771.9 804.5 703.8 D 2.2 1.7 0.5 124 124 125 123 110
LTR * LOEWS CORP DEC 17,203.5 F 15,205.2 F 15,209.0 A,F 15,809.6 A,C 16,827.8 D,F 18,799.1 F 19,964.8 F (1.5) (1.8) 13.1 86 76 76 79 84
UTR † UNITRIN INC DEC 3,074.2 3,048.1 3,040.8 2,943.8 2,298.2 A 1,971.7 1,523.1 7.3 9.3 0.9 202 200 200 193 151
INSURANCE BROKERS‡
AOC * AON CORP DEC 8,954.0 C,D 9,837.0 D 10,172.0 D 9,810.0 D 8,774.0 7,676.0 A 3,888.2 D 8.7 3.1 (9.0) 230 253 262 252 226
AJG † ARTHUR J GALLAGHER & CO DEC 1,536.4 A 1,483.9 A,C 1,480.3 A 1,289.5 A 1,120.8 A 903.9 A 456.7 A 12.9 11.2 3.5 336 325 324 282 245
BRO † BROWN & BROWN INC DEC 878.0 A 785.8 A 646.9 A 551.0 A 455.7 A 365.0 A 117.6 22.3 19.2 11.7 747 668 550 469 388
HRH § HILB ROGAL & HOBBS CO DEC 710.8 A 673.9 A 619.6 A 563.6 A 452.7 A,C 330.3 A 158.2 A 16.2 16.6 5.5 449 426 392 356 286
MMC * MARSH & MCLENNAN COS DEC 11,921.0 A,C 11,652.0 A,C 12,121.0 A 11,588.0 A 10,440.0 A 9,943.0 A 4,115.8 A 11.2 3.7 2.3 290 283 294 282 254
Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available.
A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes
other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.

JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

31
32
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

Net Income

Million $ Compound Growth Rate (%) Index Basis (1996 = 100)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 2002
PROPERTY CASUALTY‡
ACE * ACE LTD DEC 2,301.0 1,028.0 1,152.7 1,417.5 76.5 (123.7) 289.7 23.0 NM 123.8 794 355 398 489 26
ALL * ALLSTATE CORP DEC 4,993.0 1,765.0 3,356.0 2,720.0 1,465.0 1,167.0 2,075.0 9.2 33.7 182.9 241 85 162 131 71
ABK * AMBAC FINANCIAL GP DEC 875.9 751.0 725.8 628.1 432.6 432.9 276.3 12.2 15.1 16.6 317 272 263 227 157
BER † BERKLEY (W R) CORP DEC 699.5 544.9 438.8 337.2 175.0 (91.5) 90.3 22.7 NM 28.4 775 604 486 374 194
CB * CHUBB CORP DEC 2,528.0 1,825.9 1,548.4 808.8 222.9 111.5 486.2 17.9 86.7 38.5 520 376 318 166 46

CINF * CINCINNATI FINANCIAL CORP DEC 930.0 602.0 584.0 374.0 238.0 193.0 223.8 15.3 37.0 54.5 416 269 261 167 106
CGI † COMMERCE GROUP INC/MA DEC 241.5 243.9 214.4 160.9 35.5 93.1 74.0 12.6 21.0 (1.0) 327 330 290 218 48
FNF † FIDELITY NATIONAL FINANCIAL DEC 437.8 539.0 558.2 683.3 NA NA NA NA NA (18.8) ** ** ** ** NA
FAF † FIRST AMERICAN CORP/CA DEC 287.7 485.3 349.1 451.0 234.4 167.3 53.6 18.3 11.5 (40.7) 537 906 651 842 437
THG † HANOVER INSURANCE GROUP INC DEC 191.7 76.5 182.5 86.9 (302.4) 0.1 181.9 0.5 NM 150.6 105 42 100 48 (166)

IPCC § INFINITY PROPERTY & CAS CORP DEC 87.3 106.3 96.4 58.2 45.9 9.7 NA NA 55.1 (17.9) ** ** ** ** NA
LFG § LANDAMERICA FINANCIAL GP DEC 98.8 165.6 146.3 192.1 149.4 60.3 36.5 10.5 10.4 (40.3) 271 453 401 526 409
MBI * MBIA INC DEC 813.2 712.1 840.5 813.6 586.8 583.2 322.2 9.7 6.9 14.2 252 221 261 253 182
MCY † MERCURY GENERAL CORP DEC 214.8 253.3 286.2 184.3 66.1 105.3 105.8 7.3 15.3 (15.2) 203 239 271 174 63
ORI † OLD REPUBLIC INTL CORP DEC 464.8 551.4 435.0 459.8 392.9 346.9 234.7 7.1 6.0 (15.7) 198 235 185 196 167

PHLY § PHILADELPHIA CONS HLDG CORP DEC 288.8 156.7 83.7 62.2 36.0 30.6 13.4 36.0 56.7 84.3 2,160 1,172 626 465 269
PRA § PROASSURANCE CORP DEC 127.0 80.0 72.8 38.7 10.5 12.4 31.1 15.1 59.1 58.7 408 257 234 124 34
PGR * PROGRESSIVE CORP-OHIO DEC 1,647.5 1,393.9 1,648.7 1,255.4 667.3 411.4 313.7 18.0 32.0 18.2 525 444 526 400 213
RLI § RLI CORP DEC 134.6 107.1 73.0 71.3 35.9 30.2 25.7 18.0 34.8 25.7 524 417 284 277 140
SAF * SAFECO CORP DEC 880.0 691.1 620.2 339.2 301.1 (1,045.3) 439.0 7.2 NM 27.3 200 157 141 77 69

SAFT § SAFETY INSURANCE GROUP INC DEC 111.9 95.2 45.0 28.5 10.5 0.0 NA NA NM 17.6 ** ** ** ** NA
SKP § SCPIE HOLDINGS INC DEC 12.3 3.5 (7.9) (12.8) (38.4) (58.0) 30.2 (8.6) NM 254.1 41 11 (26) (42) (127)
SIGI § SELECTIVE INS GROUP INC DEC 163.6 147.5 128.6 66.3 42.1 26.3 55.6 11.4 44.1 10.9 294 265 232 119 76
STC § STEWART INFORMATION SERVICES DEC 43.3 88.8 82.5 123.8 94.5 48.7 14.4 11.6 (2.3) (51.3) 300 615 572 857 654
TWGP § TOWER GROUP INC DEC 36.8 20.8 9.0 6.3 5.6 NA NA NA NA 77.1 ** ** ** ** NA

TRV * TRAVELERS COS INC DEC 4,208.0 2,061.0 955.0 1,696.0 215.6 1,062.0 391.0 26.8 31.7 104.2 1,076 527 244 434 55
UFCS § UNITED FIRE & CAS CO DEC 88.1 9.0 78.8 55.6 20.8 24.1 22.0 14.9 29.6 874.0 401 41 359 253 95
XL * XL CAPITAL LTD DEC 1,762.8 (1,252.0) 1,166.6 412.0 405.6 (576.1) 494.3 13.6 NM NM 357 (253) 236 83 82
ZNT § ZENITH NATIONAL INSURANCE CP DEC 258.7 156.4 117.7 65.8 1.0 (23.8) 37.6 21.3 NM 65.4 688 416 313 175 3
REINSURANCE‡
RE † EVEREST RE GROUP LTD DEC 840.8 (218.7) 494.9 426.0 231.3 99.0 112.0 22.3 53.4 NM 751 (195) 442 380 206
MULTI-LINE GROUP‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 428.2 207.8 367.9 321.2 125.0 (4.8) 262.0 5.0 NM 106.0 163 79 140 123 48
AIG * AMERICAN INTERNATIONAL GROUP DEC 14,014.0 10,477.0 9,983.0 9,265.0 5,519.0 5,499.0 2,897.3 17.1 20.6 33.8 484 362 345 320 190
AIZ * ASSURANT INC DEC 715.9 479.4 350.6 185.7 259.7 98.1 NA NA 48.8 49.3 ** ** ** ** NA
GNW * GENWORTH FINANCIAL INC DEC 1,324.0 1,221.0 1,145.0 969.0 NA NA NA NA NA 8.4 ** ** ** ** NA
HIG * HARTFORD FINANCIAL SERVICES DEC 2,745.0 2,274.0 2,138.0 (91.0) 1,000.0 549.0 (99.0) NM 38.0 20.7 NM NM NM NM NM

HCC † HCC INSURANCE HOLDINGS INC DEC 342.3 188.4 159.0 106.9 105.8 30.2 29.3 27.9 62.5 81.6 1,168 643 543 365 361
HMN † HORACE MANN EDUCATORS CORP DEC 98.7 77.3 56.3 19.0 11.3 25.6 73.8 3.0 31.0 27.7 134 105 76 26 15
LTR * LOEWS CORP DEC 2,517.0 1,192.9 1,235.3 (666.1) 982.6 (535.8) 1,383.9 6.2 NM 111.0 182 86 89 (48) 71
UTR † UNITRIN INC DEC 283.1 255.5 240.2 123.6 (8.2) 380.9 132.5 7.9 (5.8) 10.8 214 193 181 93 (6)
INSURANCE BROKERS‡
AOC * AON CORP DEC 626.0 642.0 577.0 663.0 466.0 147.0 291.8 7.9 33.6 (2.5) 215 220 198 227 160
AJG † ARTHUR J GALLAGHER & CO DEC 128.5 28.6 188.5 146.2 129.7 125.3 45.8 10.9 0.5 349.3 281 62 412 319 283
BRO † BROWN & BROWN INC DEC 172.4 150.6 128.8 110.3 83.1 53.9 16.5 26.4 26.2 14.5 1,045 913 781 669 504
HRH § HILB ROGAL & HOBBS CO DEC 87.0 56.2 81.4 75.0 61.2 32.3 11.4 22.5 21.9 54.9 763 493 714 657 536
MMC * MARSH & MCLENNAN COS DEC 818.0 369.0 176.0 1,540.0 1,365.0 974.0 459.3 5.9 (3.4) 121.7 178 80 38 335 297

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available.
 Return on Revenues (%) Return on Assets (%) Return on Equity (%)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
PROPERTY CASUALTY‡
ACE * ACE LTD DEC 17.2 7.9 9.4 13.3 1.1 3.5 1.7 2.1 3.0 0.1 17.3 9.1 11.9 18.2 0.8
ALL * ALLSTATE CORP DEC 13.9 5.0 9.9 8.5 5.0 3.2 1.2 2.4 2.2 1.3 23.8 8.4 15.8 14.3 8.5
ABK * AMBAC FINANCIAL GP DEC 48.4 45.5 51.9 50.0 44.8 4.4 3.9 4.1 3.9 3.1 15.2 14.4 15.6 15.9 13.1
BER † BERKLEY (W R) CORP DEC 13.0 10.9 9.7 9.3 6.8 4.7 4.3 4.2 4.1 2.8 23.7 23.3 23.1 22.3 15.4
CB * CHUBB CORP DEC 18.1 13.0 11.8 7.1 2.4 5.1 4.0 3.7 2.2 0.7 19.2 16.2 16.6 10.5 3.3

CINF * CINCINNATI FINANCIAL CORP DEC 23.8 16.0 16.2 11.8 8.4 5.6 3.7 3.7 2.5 1.7 14.4 9.8 9.4 6.3 4.1
CGI † COMMERCE GROUP INC/MA DEC 12.4 12.9 11.9 9.8 2.8 6.0 6.5 6.3 5.8 1.6 17.2 20.1 21.1 18.9 4.4
FNF † FIDELITY NATIONAL FINANCIAL DEC 4.6 8.5 9.5 11.4 NA 6.7 9.8 11.3 NA NA 14.7 20.9 21.7 NA NA
FAF † FIRST AMERICAN CORP/CA DEC 3.4 6.1 5.2 7.3 5.0 3.6 7.0 6.3 10.9 7.5 9.3 17.7 16.1 27.8 19.0
THG † HANOVER INSURANCE GROUP INC DEC 7.3 2.9 5.9 2.7 NM 1.9 0.4 0.7 0.3 NM 9.7 3.6 8.0 4.0 NM

IPCC § INFINITY PROPERTY & CAS CORP DEC 8.5 10.1 10.1 7.6 6.5 4.4 5.4 5.0 3.4 2.8 13.5 18.1 19.2 13.8 9.7
LFG § LANDAMERICA FINANCIAL GP DEC 2.5 4.2 4.2 5.6 5.8 2.5 4.7 4.9 8.3 8.3 7.4 13.6 13.3 20.1 18.8
MBI * MBIA INC DEC 30.3 31.4 41.0 46.2 48.0 2.2 2.1 2.7 3.3 3.3 11.8 10.8 13.1 13.8 11.4
MCY † MERCURY GENERAL CORP DEC 6.8 8.5 10.7 8.1 3.7 5.1 6.6 8.5 6.4 2.7 12.9 16.5 21.1 15.7 6.1
ORI † OLD REPUBLIC INTL CORP DEC 12.3 14.5 12.5 14.0 14.3 3.8 5.0 4.3 5.0 4.7 11.1 14.0 11.7 13.7 13.2

PHLY § PHILADELPHIA CONS HLDG CORP DEC 23.0 14.9 10.2 10.0 7.9 9.1 5.8 3.8 3.9 3.0 29.1 21.5 14.1 12.2 7.9
PRA § PROASSURANCE CORP DEC 17.2 12.4 9.2 5.5 1.9 3.1 2.2 2.4 1.4 0.4 13.5 11.6 12.6 7.4 2.3
PGR * PROGRESSIVE CORP-OHIO DEC 11.2 9.8 12.0 10.6 7.2 8.6 7.7 9.9 8.4 5.4 25.4 24.8 32.4 28.5 19.0
RLI § RLI CORP DEC 21.8 18.8 12.6 13.7 9.4 4.9 4.1 3.2 3.7 2.3 18.6 16.3 12.4 14.1 9.1
SAF * SAFECO CORP DEC 14.4 10.9 10.0 4.5 4.3 6.1 4.7 2.5 1.0 0.9 21.9 17.2 13.9 7.2 7.5

SAFT § SAFETY INSURANCE GROUP INC DEC 16.4 14.2 7.1 4.8 2.0 8.6 7.7 3.9 2.8 1.0 25.3 27.5 15.7 11.1 5.2
SKP § SCPIE HOLDINGS INC DEC 8.5 2.3 NM NM NM 1.8 0.4 NM NM NM 6.2 1.8 NM NM NM
SIGI § SELECTIVE INS GROUP INC DEC 9.0 8.8 8.2 4.9 3.6 3.6 3.5 3.5 2.1 1.5 15.9 15.8 15.8 9.5 6.8
STC § STEWART INFORMATION SERVICES DEC 1.8 3.7 3.8 5.5 5.3 3.1 6.9 7.4 13.2 12.4 5.5 12.1 12.5 22.2 21.3
TWGP § TOWER GROUP INC DEC 12.3 9.4 8.4 8.4 9.0 4.6 3.6 2.3 2.6 NA 22.3 15.1 12.7 55.3 NA

TRV * TRAVELERS COS INC DEC 16.8 8.5 4.2 11.2 1.5 3.7 1.8 1.1 2.6 0.4 17.8 9.5 5.8 15.3 2.1
UFCS § UNITED FIRE & CAS CO DEC 13.9 1.5 13.0 9.7 4.1 3.2 0.2 3.0 2.2 0.9 14.9 1.0 17.9 15.3 6.2
XL * XL CAPITAL LTD DEC 18.4 NM 11.8 5.2 6.2 2.9 NM 2.5 1.0 1.2 18.5 NM 15.3 5.5 6.6
ZNT § ZENITH NATIONAL INSURANCE CP DEC 24.3 12.2 11.3 7.8 0.2 9.4 6.1 5.3 3.6 0.1 31.3 25.8 26.6 18.8 0.3
REINSURANCE‡
RE † EVEREST RE GROUP LTD DEC 18.6 NM 9.9 10.4 9.0 5.0 NM 3.6 3.8 2.6 18.2 NM 14.4 15.4 11.3
MULTI-LINE GROUP‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 10.1 5.1 9.4 9.6 3.3 1.8 0.9 1.7 1.6 0.7 15.9 8.5 16.3 16.9 7.8
AIG * AMERICAN INTERNATIONAL GROUP DEC 12.3 9.7 10.3 11.4 8.2 1.5 1.3 1.3 1.5 1.0 14.9 12.6 13.2 14.2 9.9
AIZ * ASSURANT INC DEC 9.0 6.4 4.8 2.7 4.0 2.8 1.9 1.5 0.8 1.1 19.0 13.1 11.2 7.2 8.6
GNW * GENWORTH FINANCIAL INC DEC 12.0 11.6 10.4 8.3 NA 1.2 1.2 1.1 NA NA 9.9 9.3 8.0 NA NA
HIG * HARTFORD FINANCIAL SERVICES DEC 10.4 8.4 9.4 NM 6.3 0.9 0.8 0.9 NM 0.6 16.1 15.4 16.5 NM 10.1

HCC † HCC INSURANCE HOLDINGS INC DEC 16.5 11.5 12.4 11.3 15.8 4.7 2.9 2.9 2.5 3.1 18.3 12.5 13.4 11.1 12.9
HMN † HORACE MANN EDUCATORS CORP DEC 11.3 8.9 6.4 2.2 1.5 1.6 1.4 1.1 0.4 0.3 16.0 13.4 10.2 3.6 2.3
LTR * LOEWS CORP DEC 14.6 7.8 8.1 NM 5.8 3.4 1.7 1.6 NM 1.3 17.0 9.4 10.6 NM 9.4
UTR † UNITRIN INC DEC 9.2 8.4 7.9 4.2 NM 3.1 2.8 2.8 1.5 NM 12.7 12.2 12.5 6.8 NM
INSURANCE BROKERS‡
AOC * AON CORP DEC 7.0 6.5 5.7 6.8 5.3 2.4 2.3 2.1 2.5 1.9 11.9 12.3 12.0 15.7 12.6
AJG † ARTHUR J GALLAGHER & CO DEC 8.4 1.9 12.7 11.3 11.6 3.8 0.9 6.1 5.4 6.6 15.7 3.7 27.3 25.5 28.8
BRO † BROWN & BROWN INC DEC 19.6 19.2 19.9 20.0 18.2 10.1 10.5 12.2 13.6 13.4 20.4 21.7 23.0 24.8 29.3
HRH § HILB ROGAL & HOBBS CO DEC 12.2 8.3 13.1 13.3 13.5 6.3 4.3 7.0 8.0 9.2 15.1 10.7 17.3 20.1 27.0
MMC * MARSH & MCLENNAN COS DEC 6.9 3.2 1.5 13.3 13.1 4.5 2.0 1.1 10.7 10.1 14.6 7.1 3.4 29.4 26.8

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.

JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

33
34
JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002

PROPERTY CASUALTY‡
ACE * ACE LTD DEC 9-7 17-11 12-8 8-5 NM-NM 14 27 21 15 347 2.0-1.6 2.3-1.6 2.6-1.8 3.1-1.7 3.0-1.5
ALL * ALLSTATE CORP DEC 8-6 24-19 11-9 11-8 20-15 18 48 23 24 41 2.8-2.1 2.6-2.0 2.6-2.2 3.1-2.1 2.7-2.0
ABK * AMBAC FINANCIAL GP DEC 11-9 12-9 13-10 12-7 17-12 8 8 7 7 9 0.9-0.7 0.9-0.7 0.7-0.6 1.0-0.6 0.8-0.5
BER † BERKLEY (W R) CORP DEC 11-8 11-7 9-7 9-6 12-9 4 4 5 7 10 0.5-0.4 0.6-0.4 0.8-0.6 1.1-0.7 1.2-0.9
CB * CHUBB CORP DEC 9-8 11-8 10-8 15-9 60-40 16 19 19 32 107 2.1-1.8 2.4-1.7 2.5-2.0 3.4-2.1 2.7-1.8

CINF * CINCINNATI FINANCIAL CORP DEC 9-8 13-11 13-11 18-14 32-22 25 35 31 43 61 3.3-2.7 3.1-2.6 2.8-2.4 3.0-2.4 2.7-1.9
CGI † COMMERCE GROUP INC/MA DEC 9-7 10-7 10-6 8-6 39-27 27 20 20 25 114 3.8-3.0 2.8-2.1 3.3-2.1 4.0-3.1 4.2-2.9
FNF † FIDELITY NATIONAL FINANCIAL DEC 11-7 8-6 NA-NA NA-NA NA-NA 49 8 NA NA NA 6.5-4.5 1.3-1.0 NA-NA NA-NA NA-NA
FAF † FIRST AMERICAN CORP/CA DEC 16-12 10-6 9-6 5-4 7-5 24 14 15 8 10 2.0-1.5 2.4-1.5 2.5-1.7 2.3-1.6 2.1-1.5
THG † HANOVER INSURANCE GROUP INC DEC 15-11 30-21 11-7 19-6 NM-NM 8 17 0 0 NM 0.7-0.6 0.8-0.6 0.0-0.0 0.0-0.0 0.0-0.0

IPCC § INFINITY PROPERTY & CAS CORP DEC 12-8 7-6 8-6 12-5 NA-NA 7 5 5 6 NA 0.8-0.6 0.8-0.6 0.8-0.6 1.1-0.5 NA-NA
LFG § LANDAMERICA FINANCIAL GP DEC 12-10 7-5 7-4 5-3 5-3 14 7 6 3 3 1.4-1.1 1.4-0.9 1.4-0.9 1.0-0.6 1.0-0.6
MBI * MBIA INC DEC 12-9 12-9 11-9 11-6 15-9 20 21 16 14 17 2.2-1.7 2.3-1.8 1.8-1.4 2.3-1.3 1.9-1.1
MCY † MERCURY GENERAL CORP DEC 15-12 13-11 11-9 15-10 42-31 49 37 28 39 98 3.9-3.2 3.4-2.8 3.2-2.5 3.9-2.6 3.2-2.3
ORI † OLD REPUBLIC INTL CORP DEC 12-10 9-7 12-9 10-6 11-7 29 55 21 44 19 2.9-2.5 7.4-5.8 2.4-1.8 6.8-4.3 2.6-1.8

PHLY § PHILADELPHIA CONS HLDG CORP DEC 11-7 15-10 18-12 19-10 29-16 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0
PRA § PROASSURANCE CORP DEC 13-12 20-14 16-12 25-15 53-35 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0
PGR * PROGRESSIVE CORP-OHIO DEC 14-10 18-11 13-9 15-8 20-15 2 2 1 2 3 0.1-0.1 0.1-0.1 0.2-0.1 0.2-0.1 0.2-0.2
RLI § RLI CORP DEC 11-8 13-9 15-11 13-9 17-12 14 15 18 14 19 1.7-1.3 1.6-1.1 1.5-1.2 1.6-1.0 1.6-1.1
SAF * SAFECO CORP DEC 9-6 11-8 11-8 16-13 16-11 15 17 17 30 32 2.2-1.7 2.1-1.6 2.0-1.5 2.3-1.9 3.0-1.9

SAFT § SAFETY INSURANCE GROUP INC DEC 8-5 7-4 11-6 10-7 11-8 12 10 15 18 0 2.3-1.5 2.3-1.4 2.6-1.4 2.6-1.8 0.0-0.0
SKP § SCPIE HOLDINGS INC DEC 22-16 58-25 NM-NM NM-NM NM-NM 0 0 NM NM NM 0.0-0.0 0.0-0.0 0.0-0.0 7.0-2.5 10.7-1.4
SIGI § SELECTIVE INS GROUP INC DEC 10-8 11-8 10-7 13-9 19-12 15 15 15 24 36 1.8-1.5 1.9-1.3 2.2-1.5 2.8-1.9 3.1-1.9
STC § STEWART INFORMATION SERVICES DEC 23-14 11-7 10-7 6-3 4-3 32 15 10 7 0 2.3-1.4 2.2-1.4 1.5-1.0 2.2-1.1 0.0-0.0
TWGP § TOWER GROUP INC DEC 20-9 22-9 10-7 NA-NA NA-NA 5 9 2 NA NA 0.6-0.3 1.0-0.4 0.3-0.2 NA-NA NA-NA

TRV * TRAVELERS COS INC DEC 9-7 15-11 28-19 10-8 92-51 17 30 68 17 NA 2.5-1.8 2.7-1.9 3.5-2.4 2.2-1.6 NA-NA
UFCS § UNITED FIRE & CAS CO DEC 13-8 NM-NM 10-5 8-6 22-16 15 218 11 15 41 1.8-1.2 1.7-1.0 2.1-1.2 2.7-1.9 2.6-1.8
XL * XL CAPITAL LTD DEC 8-6 NM-NM 10-8 33-23 34-20 16 NM 24 71 64 2.5-2.1 3.3-2.5 2.9-2.4 3.0-2.2 3.2-1.9
ZNT § ZENITH NATIONAL INSURANCE CP DEC 8-5 11-7 8-5 9-5 NM-NM 17 19 18 29 NM 3.2-2.1 2.9-1.8 3.4-2.1 5.2-3.0 4.5-3.1
REINSURANCE‡
RE † EVEREST RE GROUP LTD DEC 8-7 NM-NM 10-8 11-6 17-9 5 NM 5 5 7 0.7-0.6 0.5-0.4 0.6-0.4 0.8-0.4 0.8-0.4
MULTI-LINE GROUP‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 10-7 15-10 7-5 6-4 17-10 10 19 10 11 27 1.5-1.0 1.8-1.3 1.9-1.5 2.8-1.9 2.8-1.7
AIG * AMERICAN INTERNATIONAL GROUP DEC 14-11 18-12 20-14 19-12 38-23 12 14 7 6 8 1.1-0.9 1.1-0.7 0.5-0.4 0.5-0.3 0.4-0.2
AIZ * ASSURANT INC DEC 10-8 13-8 12-9 NA-NA NA-NA 7 9 8 0 NA 0.9-0.7 1.0-0.7 0.9-0.7 NA-NA NA-NA
GNW * GENWORTH FINANCIAL INC DEC 13-11 14-10 12-8 NA-NA NA-NA 11 11 3 0 NA 1.0-0.9 1.0-0.8 0.3-0.2 NA-NA NA-NA
HIG * HARTFORD FINANCIAL SERVICES DEC 11-9 12-9 10-7 NM-NM 18-9 19 15 15 NM 26 2.1-1.8 1.8-1.3 2.1-1.6 3.4-1.8 2.8-1.5

HCC † HCC INSURANCE HOLDINGS INC DEC 11-9 19-12 14-11 19-13 17-11 12 19 13 17 15 1.3-1.1 1.6-1.0 1.2-0.9 1.3-0.9 1.3-0.9
HMN † HORACE MANN EDUCATORS CORP DEC 9-7 12-9 15-11 39-28 86-49 18 23 32 95 150 2.6-2.0 2.6-2.0 3.0-2.2 3.4-2.5 3.1-1.7
LTR * LOEWS CORP DEC 11-8 19-13 13-9 NM-NM 14-8 6 12 11 NM 13 0.8-0.6 0.9-0.6 1.2-0.8 1.6-1.2 1.6-1.0
UTR † UNITRIN INC DEC 12-9 15-11 14-10 23-12 NM-NM 42 46 47 91 NM 4.5-3.4 4.2-3.1 4.5-3.3 7.7-3.9 6.0-3.9
INSURANCE BROKERS‡
AOC * AON CORP DEC 22-16 19-10 16-10 13-8 24-8 30 30 33 29 50 1.9-1.4 2.9-1.6 3.3-2.0 3.4-2.2 6.2-2.1
AJG † ARTHUR J GALLAGHER & CO DEC 24-18 NM-88 17-12 20-14 25-15 91 373 49 44 40 4.9-3.8 4.2-3.4 3.9-2.9 3.1-2.2 2.8-1.6
BRO † BROWN & BROWN INC DEC 29-22 29-19 25-17 23-17 30-19 17 16 16 15 16 0.8-0.6 0.8-0.5 0.9-0.6 0.9-0.6 0.8-0.5
HRH § HILB ROGAL & HOBBS CO DEC 19-15 25-20 17-14 20-13 22-13 20 29 18 17 17 1.3-1.0 1.4-1.1 1.3-1.0 1.4-0.8 1.3-0.8
MMC * MARSH & MCLENNAN COS DEC 22-16 50-39 NM-67 19-13 23-14 46 99 291 52 43 2.8-2.1 2.5-2.0 4.4-2.0 3.9-2.7 3.1-1.9

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.
 Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
PROPERTY CASUALTY‡
ACE * ACE LTD DEC 7.01 3.36 3.95 5.10 0.19 35.36 28.17 25.11 21.87 13.98 61.90-47.81 56.85-38.36 45.98-31.80 42.80-23.59 44.98-22.01
ALL * ALLSTATE CORP DEC 7.89 2.67 4.82 3.87 2.07 33.80 29.97 30.73 27.89 23.52 66.14-50.22 63.22-49.66 51.99-42.55 43.27-30.05 41.95-31.03
ABK * AMBAC FINANCIAL GP DEC 8.22 6.94 6.62 5.90 4.08 58.49 50.85 46.13 39.71 34.20 90.75-73.74 82.92-62.20 84.73-63.80 72.21-43.79 71.25-49.86
BER † BERKLEY (W R) CORP DEC 3.65 2.86 2.32 1.80 1.02 16.95 13.08 10.82 8.64 6.85 40.95-30.61 32.86-20.58 21.07-15.53 16.41-10.84 12.09-8.86
CB * CHUBB CORP DEC 6.13 4.61 4.07 2.26 0.65 32.57 28.56 25.07 21.43 18.67 54.73-46.60 49.72-36.51 38.73-31.50 34.65-20.89 39.32-25.95

CINF * CINCINNATI FINANCIAL CORP DEC 5.36 3.44 3.30 2.11 1.33 39.35 34.98 35.64 35.17 31.34 49.19-41.21 45.95-38.38 43.52-36.57 38.01-30.00 42.90-29.41
CGI † COMMERCE GROUP INC/MA DEC 3.57 3.63 3.27 2.52 0.54 22.53 19.39 16.73 14.20 12.27 32.00-25.77 35.00-26.63 31.34-19.60 20.62-15.85 21.06-14.73
FNF † FIDELITY NATIONAL FINANCIAL DEC 2.40 3.11 3.22 3.95 NA 10.05 7.57 NA NA NA 25.73-17.92 24.55-19.50 NA-NA NA-NA NA-NA
FAF † FIRST AMERICAN CORP/CA DEC 2.99 5.14 4.04 5.89 3.27 6.41 6.95 7.81 6.51 10.46 47.32-35.80 49.50-30.00 35.36-24.29 31.24-21.60 23.20-16.14
THG † HANOVER INSURANCE GROUP INC DEC 3.72 1.43 3.43 1.64 (5.72) 36.75 33.95 41.57 39.47 36.69 54.43-40.72 43.30-30.15 38.32-24.35 31.35-9.82 50.80-7.04

IPCC § INFINITY PROPERTY & CAS CORP DEC 4.30 5.15 4.69 2.86 2.25 30.04 26.64 22.84 18.56 NA 50.00-36.08 38.47-29.90 38.29-26.24 34.82-15.42 NA-NA
LFG § LANDAMERICA FINANCIAL GP DEC 5.80 9.45 8.07 10.43 8.10 27.11 31.11 20.58 24.51 36.08 71.04-58.75 70.09-46.50 57.73-35.51 53.18-35.50 38.30-25.25
MBI * MBIA INC DEC 6.12 5.31 5.92 5.67 4.00 52.84 48.95 46.48 42.88 37.32 73.49-56.00 64.00-49.07 67.34-52.55 60.72-34.14 60.11-34.93
MCY † MERCURY GENERAL CORP DEC 3.93 4.64 5.25 3.39 1.22 31.54 29.22 26.54 22.84 20.21 59.90-48.75 60.45-51.16 60.26-46.29 50.30-33.50 51.15-37.25
ORI † OLD REPUBLIC INTL CORP DEC 2.01 2.40 1.90 2.02 1.74 18.91 J 17.53 J 16.94 J 15.65 J 13.96 J 23.65-20.08 22.60-17.64 22.04-16.90 20.85-13.12 18.67-13.01

PHLY § PHILADELPHIA CONS HLDG CORP DEC 4.14 2.29 1.26 0.95 0.56 16.27 11.79 9.25 7.87 6.89 45.99-29.82 34.13-21.77 22.95-15.23 17.58-9.52 16.05-8.75
PRA § PROASSURANCE CORP DEC 3.96 2.66 2.50 1.34 0.40 33.61 24.59 20.92 18.77 17.49 53.40-45.73 52.32-36.06 40.58-29.84 33.30-20.00 21.24-14.10
PGR * PROGRESSIVE CORP-OHIO DEC 2.13 1.77 1.93 1.45 0.76 9.15 7.74 6.43 5.81 4.32 30.09-22.18 31.23-20.34 24.32-18.27 21.17-11.56 15.12-11.19
RLI § RLI CORP DEC 5.40 4.21 2.90 2.84 1.80 30.08 26.07 23.60 20.98 17.37 57.50-44.77 56.50-39.96 43.70-33.00 38.15-24.50 30.20-22.23
SAF * SAFECO CORP DEC 7.56 5.49 4.62 2.45 2.33 37.30 33.37 30.88 34.92 30.69 64.85-49.09 58.35-45.18 52.65-37.95 39.79-31.79 38.00-24.99

SAFT § SAFETY INSURANCE GROUP INC DEC 7.07 6.11 2.94 1.87 1.44 30.84 24.57 19.70 17.56 16.07 57.79-37.10 44.34-26.20 32.33-17.00 18.46-12.88 15.40-12.00
SKP § SCPIE HOLDINGS INC DEC 1.29 0.37 (0.84) (1.37) (4.12) 21.63 20.05 20.68 J 21.20 24.34 J 28.97-20.11 21.38-9.34 11.00-7.05 15.90-5.71 29.60-3.73
SIGI § SELECTIVE INS GROUP INC DEC 2.97 2.71 2.40 1.27 0.83 18.22 16.74 15.01 12.94 11.45 29.18-24.89 29.64-20.88 22.98-15.86 16.50-10.90 15.74-9.68
STC § STEWART INFORMATION SERVICES DEC 2.37 4.89 4.56 6.93 5.33 31.95 32.80 30.67 30.08 24.07 54.85-32.42 53.01-34.70 47.60-31.10 41.45-20.76 22.50-15.05
TWGP § TOWER GROUP INC DEC 1.85 1.06 1.23 1.37 1.18 8.95 7.00 6.31 2.96 2.01 36.49-16.80 23.45-10.05 12.55-8.50 NA-NA NA-NA

TRV * TRAVELERS COS INC DEC 6.12 3.04 1.56 3.90 0.53 30.67 25.66 20.93 21.00 17.76 55.00-40.23 46.97-33.70 43.31-30.23 40.19-29.95 48.57-27.11
UFCS § UNITED FIRE & CAS CO DEC 3.37 0.22 3.68 2.53 0.88 24.62 J 21.20 J 22.42 18.55 14.36 42.33-27.50 47.72-27.75 35.76-20.13 20.45-14.20 19.68-13.75
XL * XL CAPITAL LTD DEC 9.63 (9.14) 8.17 2.71 2.92 45.93 37.08 42.54 37.07 36.13 72.90-59.82 79.80-60.03 82.00-66.70 88.87-63.49 98.48-58.45
ZNT § ZENITH NATIONAL INSURANCE CP DEC 7.00 4.66 4.09 2.33 0.03 24.84 18.57 16.56 12.77 10.52 55.30-36.14 49.20-30.65 34.19-21.38 21.90-12.77 21.50-14.67
REINSURANCE‡
RE † EVEREST RE GROUP LTD DEC 12.99 (3.79) 8.85 7.89 4.60 78.57 64.07 66.07 56.84 47.00 103.26-85.63 108.49-80.20 90.67-69.20 85.25-47.90 76.50-42.59
MULTI-LINE GROUP‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 3.63 1.80 3.33 3.02 1.21 23.14 19.56 19.70 17.41 14.25 36.71-24.70 26.33-18.64 21.72-17.52 17.80-12.00 20.20-11.93
AIG * AMERICAN INTERNATIONAL GROUP DEC 5.38 4.03 3.83 3.55 2.11 35.77 30.13 27.39 24.39 20.32 72.97-57.52 73.46-49.91 77.36-54.28 66.35-42.92 80.00-47.61
AIZ * ASSURANT INC DEC 5.65 3.53 2.53 1.70 31.29 23.71 21.01 20.04 16.35 207.34 56.78-42.72 44.68-29.70 31.29-23.09 NA-NA NA-NA
GNW * GENWORTH FINANCIAL INC DEC 2.90 2.57 2.34 1.98 NA 24.53 23.68 21.85 NA NA 36.47-31.00 35.25-25.72 27.84-18.75 NA-NA NA-NA
HIG * HARTFORD FINANCIAL SERVICES DEC 8.89 7.63 7.32 (0.33) 4.01 53.07 45.03 42.55 35.00 35.31 94.03-79.24 89.49-65.35 69.57-52.73 59.27-31.64 70.24-37.25

HCC † HCC INSURANCE HOLDINGS INC DEC 3.08 1.78 1.63 1.13 1.13 11.64 10.45 8.42 6.68 5.70 35.15-28.51 32.95-21.31 23.17-18.35 21.39-14.87 19.30-12.74
HMN † HORACE MANN EDUCATORS CORP DEC 2.29 1.80 1.32 0.44 0.28 13.90 12.03 11.84 10.67 10.53 21.01-16.05 20.80-15.86 19.30-13.94 16.95-12.43 24.08-13.61
LTR * LOEWS CORP DEC 3.80 1.69 1.89 (1.40) 1.50 29.77 22.95 21.31 19.29 19.88 42.18-30.42 32.90-22.35 23.67-16.36 16.49-12.75 20.77-12.50
UTR † UNITRIN INC DEC 4.17 3.70 3.51 1.83 (0.12) 28.95 26.46 24.61 21.75 21.56 51.45-39.33 54.13-40.80 49.99-36.72 42.50-21.50 42.80-27.85
INSURANCE BROKERS‡
AOC * AON CORP DEC 1.98 1.99 1.80 2.08 1.65 1.80 2.48 0.76 (0.60) (1.41) 42.76-31.01 37.14-20.64 29.44-18.15 26.79-17.41 39.63-13.30
AJG † ARTHUR J GALLAGHER & CO DEC 1.32 0.30 2.06 1.63 1.49 3.40 3.67 4.20 4.40 4.44 31.77-24.42 32.85-26.48 34.25-25.42 32.74-23.28 37.24-21.70
BRO † BROWN & BROWN INC DEC 1.23 1.09 0.94 0.81 0.62 (1.08) (1.17) (0.21) 0.20 0.08 35.25-27.06 31.90-21.00 23.38-16.00 18.83-13.38 18.50-12.00
HRH § HILB ROGAL & HOBBS CO DEC 2.42 1.57 2.27 2.17 2.09 (5.02) (6.04) (6.99) (5.08) (3.92) 45.44-35.60 39.93-31.75 38.92-30.77 43.89-27.16 46.15-26.65
MMC * MARSH & MCLENNAN COS DEC 1.49 0.69 0.34 2.89 2.52 (3.34) (4.20) (5.85) (0.66) (0.72) 32.73-24.00 34.25-26.67 49.69-22.75 54.97-38.27 57.30-34.61

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. J-This amount includes intangibles that cannot be identified.

The analysis and opinion set forth in this publication are provided by Standard & Poor’s Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor’s. In this regard, Standard & Poor’s Equity Research Services
has no access to nonpublic information received by other units of Standard & Poor’s. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.

JANUARY 24, 2008 / INSURANCE: PROPERTY-CASUALTY INDUSTRY SURVEY

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Topics Covered by
INDUSTRY SURVEYS
Advertising Electric Utilities Movies & Home Entertainment
Aerospace & Defense Environmental & Waste Management Natural Gas Distribution
Agribusiness Financial Services: Diversified Oil & Gas: Equipment & Services
Airlines Foods & Nonalcoholic Beverages Oil & Gas: Production & Marketing
Alcoholic Beverages & Tobacco Healthcare: Facilities Paper & Forest Products
Apparel & Footwear Healthcare: Managed Care Publishing
Autos & Auto Parts Healthcare: Pharmaceuticals REITs
Banking Healthcare: Products & Supplies Restaurants
Biotechnology Heavy Equipment & Trucks Retailing: General
Broadcasting & Cable Homebuilding Retailing: Specialty
Chemicals Household Durables Savings & Loans
Communications Equipment Household Nondurables Semiconductor Equipment
Computers: Commercial Services Industrial Machinery Semiconductors
Computers: Consumer Services & Insurance: Life & Health Supermarkets & Drugstores
the Internet Insurance: Property-Casualty Telecommunications: Wireless
Computers: Hardware Investment Services Telecommunications: Wireline
Computers: Software Lodging & Gaming Transportation: Commercial
Computers: Storage & Peripherals Metals: Industrial

GLOBAL INDUSTRY SURVEYS

Advertising Computers: Hardware Insurance: Property-Casualty
Aerospace & Defense Construction & Engineering Investment Services
Airlines Consumer Electronics Oil & Gas: Production & Marketing
Autos & Auto Parts Electric Utilities Publishing
Banking Foods & Nonalcoholic Beverages Real Estate
Biotechnology Healthcare: Pharmaceuticals Retailing: Specialty
Broadcasting & Cable Healthcare: Products & Supplies Supermarkets & Drugstores
Chemicals Industrial Machinery Telecommunications: Wireless
Communications Equipment Insurance: Life & Health Transportation: Commercial

Each of the topics listed above is the exclusive subject of an issue of Industry Surveys or Global Industry Surveys.
To order an issue or receive subscription information, please call (800) 221-5277.
For information about Industry Surveys and Global Industry Surveys, please call (800) 523-4534.

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