A Review of the Little Report of Rates of Return in the Property and Liability Insurance Industry [Discussion]

We are pleased to have this opportunity to reply to Mr. Bailey’s well written review of Arthur D. Little, Inc’s recent study1 of property and liability insurance. Mr. Bailey raises several methodological questions in financial and welfare economics. We will address each of these questions in turn. While we disagree with several of the conclusions Mr. Bailey reaches with respect to economic methodology, we do not disagree with what is, perhaps, the primary, practical (non-theoretical) conclusion of the Bailey review. We agree that it is both interesting and useful to compare properly measured and adjusted return on net worth for stockholder owned insurance companies to the return on net worth experienced in other economic endeavors having similar risk characteristics.