Insurance:

Profitability of the Automobile Lines of the Insurance Industry

GGD-90-4FS: Published: Oct 3, 1989. Publicly Released: Oct 3, 1989.

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Pursuant to a congressional request, GAO examined the automobile insurance industry's profitability from 1978 through 1987.

GAO found that: (1) from 1978 through 1987, the automobile insurance industry had overall profits of about $54 billion, but yielded about $22.6 billion in after-tax income after underwriting losses of over $30 billion; (2) the industry's annual after-tax earnings as a percentage of premiums averaged about 4.6 percent, while annual after-tax earnings as percentage of surplus averaged about 10.4 percent; (3) automobile insurers had their highest after-tax earnings from 1978 through 1980, suffered substantial declines from 1981 through 1983 and losses in 1984, and realized a partial recovery from 1985 through 1987; (4) from 1978 through 1987, the industry produced an estimated net cash flow after taxes of about $74 billion; (5) from 1978 through 1987, the property/casualty insurance industry had overall profits of about $187 billion in investment gains, but yielded about $78 billion in after-tax income after underwriting about $107 billion in losses; (6) the property/casualty industry earned about 6.6 percent on premiums and about 12.7 percent on surplus, while the automobile insurance industry earned about 3.2 percent on premiums and about 9.2 percent on surplus; and (7) the average rate of return on net worth for all insurance industries totalled about 13 percent from period 1978 through 1987.

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