Entries tagged with “Industry Financials”.


Commercial insurance rates in the United States held steady in March, according to the latest analysis from online insurance exchange MarketScout.

The average property/casualty rate increase was flat or 0 percent compared to the same month last year. This compares to a slight rate increase of 1 percent in February 2015.

Richard Kerr, CEO of MarketScout, noted:

March is an important month. There is a considerable volume of U.S. business placed with both the U.S. and international insurers. While a small change from February, the downward adjustment in rates may be an indicator of what is to come for the next six months.”

General liability and umbrella/excess liability were down at flat or 0 percent in March from up 1 percent in February.

No line of coverage reflected a rate decrease, while the largest rate increase by line of coverage was 1 percent.

By account size, large accounts ($250,000 to $1 million premium) were flat as compared to up 1 percent in February. Small accounts (up to $25,000 premium) adjusted downward from up 2 percent to up 1 percent. Rates for all other accounts were unchanged.

Business Insurance reports on this story here.

For a broader look at the p/c insurance market, check out industry financial and results commentary from the I.I.I.

Towers Watson just released its annual survey on predictive modeling with some notable results.

The percentage of U.S. property/casualty executives reporting a positive impact on profitability has dramatically increased over the past six years, while the breadth and depth of predictive modeling applications has grown.

Some 87 percent of property/casualty executives report that predictive modeling had a favorable impact on profitability in 2014, an increase of eight percentage points over 2013. The increase continues a pattern of growth over several years, and is up significantly from 57 percent six years ago.

A positive impact on rate accuracy helps explain the boost in profits, Towers Watson said.

In fact, the percentage of carriers citing a positive impact on rate accuracy has increased every year since 2010, when 70 percent cited a positive impact. By 2014, 98 percent of insurers reported that predictive modeling has improved their rate accuracy.

More accurate rates also positively impact loss ratios, which have improved in parallel, according to p/c insurance executives. In 2014, 91 percent cited the favorable impact of predictive modeling on loss ratios, an increase of 14 percentage points over 2013.

The survey shows the use of predictive modeling in risk selection and rating/pricing has increased significantly for all lines of business over the last year, continuing a long-term trend.

For personal lines, auto saw the largest increase with 97 percent of participants saying they used predictive modeling in underwriting/risk selection or rating/pricing in 2014, up from 80 percent in 2013 – a 17 percentage-point increase.

Even more noteworthy is the increased use of predictive modeling in commercial lines.

For commercial property/commercial multiperil (CMP)/business-owner peril (BOP) as well as commercial auto the use of modeling increased 19 percentage points – to 51 percent and 41 percent respectively, year-to-year.

But it was specialty commercial lines that saw the largest increase, where 44 percent of p/c executives said they use predictive modeling in risk selection and rating/pricing in 2014, up from 13 percent in 2013 – a 31 percentage point increase.

us-insurers-bottom-line-predictive-modeling-boosts-profits-fig1

While the survey suggests that insurers are increasingly comfortable with predictive modeling and using it in a growing number of capacities, more progress is still possible, according to Towers Watson.

Treating data as an asset and more effectively using predictive modeling applications to improve claim and other functional results could make a significant difference in the profitability of insurance companies, it suggests.

More on the survey results in this Insurance Journal article.

Towers Watson gauged the views of 52 U.S. insurance executives in personal lines and commercial lines carriers for the survey.

 

 

The presence or lack of catastrophes is a defining event when it comes to the financial state of the U.S. property/casualty insurance industry.

At the 2014 Natural Catastrophe Year in Review webinar hosted by Munich Re and the Insurance Information Institute (I.I.I.), we can see just how defining the influence of catastrophes can be.

U.S. property/casualty insurers had their second best year in 2014 since the financial crisis – 2013 was the best – according to estimates presented by I.I.I. president Dr. Robert Hartwig.

P/C industry net income after taxes (profits) are estimated at around $50 billion in 2014, after 2013 when net income rose by 82 percent to $63.8 billion on lower catastrophe losses and capital gains.

P/C profitability is subject to cyclicality and ordinary volatility, typically due to catastrophe activity, Hartwig noted.

In 2014, natural catastrophe losses in the United States totaled $15.3 billion, far below the 2000 to 2013 average annual loss of $29 billion, according to Carl Hedde, head of risk accumulation, Munich Re America.

Lower catastrophe losses helped p/c industry ROEs in 2013 and 2014, relative to 2011 and 2012, and helped the p/c industry finish 2014 in very strong financial shape, despite the impact of low interest rates on their investments, Dr. Hartwig noted.

PCROE_major_event

 

Overall industry capacity, as measured by policyholder surplus, is projected to have increased to $675 billion in 2014 – a record high.

The industry’s overall underwriting profit in 2014 is also estimated at $5.7 billion, on a combined ratio of 97.8.

Underwriting results in 2014 and 2013 were helped by generally modest catastrophe losses, a welcome respite from 2012 and 2011 when the industry felt the effects of Hurricane Sandy and record tornado losses, Dr. Hartwig noted.

Matthew Sturdevant of the Hartford Courant has a good round-up of the other webinar presentations here.

 

 

 

 

What a difference a year makes. Towers Watson’s most recent Commercial Lines Insurance Pricing Survey (CLIPS) shows that commercial insurance prices rose again by 3 percent in aggregate during the third quarter of 2014, drawing a line after five consecutive quarters of moderating price increases.

The chart below compares the change in price level reported by carriers on policies underwritten during the third quarter of 2014 to those charged for the same coverage during the third quarter of 2013.

Towers-Watson-CLIPS-Chart-Third-Quarter-2014

Towers Watson noted:

Price changes reported by carriers mark a pause in the moderation of price increases observed in the prior five consecutive quarters, following increases of between 6 percent and 7 percent, as reported in the second half of 2012 and first half of 2013.”

Price increases were fairly similar to those reported one quarter ago for most lines, but continued moderation in workers compensation and some specialty lines was offset by flat pricing in property.

The employment practice liability line, followed by commercial auto reported the largest price increases, Towers Watson said. Price increases for most lines fell in the low single digits.

Commercial property data indicated no rate change following a slight price decrease one quarter ago. When comparing account sizes, price increases were more moderate for large and specialty accounts than small and mid-market accounts, Towers Watson added.

Insurance Journal has more on this story here.

For the most recent survey, data were contributed by 43 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds).

 

 

While low interest rates are likely to continue to present a challenge well into 2015, a stronger economy presents the property/casualty insurance industry’s best opportunity for growth, according to I.I.I. president Dr. Robert Hartwig.

Dr. Hartwig shared his thoughts on the industry’s growth outlook in his Commentary on 2014 First Half Results.

There are two principal drivers of premium growth in the P/C insurance industry he noted: exposure growth and rate activity.

Exposure growth—basically an increase in the number and/or value of insurable interests (such as property and liability risks)—is being fueled primarily by economic growth and development.

Although the nation’s real (inflation-adjusted) GDP in the first quarter of 2014 actually declined at an annual rate of -2.1 percent, economic growth snapped back in the second quarter, as real GDP surged by 4.6 percent.

Dr. Hartwig says:

Growth in key areas of the economy such as new vehicle sales, multi-unit residential construction, and consistent employment and payroll growth are clearly benefitting the P/C insurance industry. For the remainder of 2014 and into 2015, the consensus forecasts call for real GDP growth to hold steady at about 3 percent.”

The other important determinant in industry growth is rate activity. Rates tend to be driven by trends in claims costs, conditions in the reinsurance market, marketing and distribution costs, and investments in technology, among other factors.

Although it’s challenging to foresee the interplay of all of these and macroeconomic factors, Dr. Hartwig says it is certainly possible that overall industry growth in net written premiums could keep pace with overall economic growth in 2014.

In the first half of 2014 the industry’s net written premium growth actually decelerated slightly to 4.0 percent in the first half of 2014, compared to 4.3 percent in the first half of 2013.

But, as Dr. Hartwig concludes:

Premium growth, while still modest, is now experiencing its longest sustained period of gains in a decade.”

Workers compensation is likely to remain the fastest growing major P/C line of insurance in 2014 if economic growth and hiring behave as projected.

While the composite rate for U.S. commercial property and casualty insurance remains positive, at plus 1 percent in August, it is closing in on flat or no increases and rate reductions are coming, according to online insurance exchange MarketScout.

Richard Kerr, CEO of MarketScout commented:

Insurers really don’t want to enter another era of rate declines; but in order to hold business, most of the market is being forced to moderate pricing. If this trend continues, we should see annual rate declines very soon.”

Aug2014_Barometer_Commercial

The key takeaways from MarketScout’s latest analysis:

– Property rates were actually up slightly at plus 3 percent in August.

– Business interruption was down one percent to flat, as were fiduciary and crime.

– Business owners’ policies and commercial auto moderated from plus 3 percent to plus 2 percent.

– Umbrella liability coverage moderated from plus 2 percent to plus 1 percent.

– Workers compensation rates were up from plus 1 percent to plus 2 percent.

– Rates as measured by account size and industry classification remained the same as in July 2014.

Bear in mind that August is traditionally a slower month for insurance placements so the volume of premium measured is less than normal.

Still, the findings tie in with the latest quarterly Commercial P/C Market Index Survey from the Council of Insurance Agents & Brokers released in July. It found prices for commercial p/c insurance continued to slide in the second quarter of 2014. On average, prices for small, medium and large accounts eased by a modest -0.5 percent during the second quarter, compared with 1.5 percent in the first quarter.

 

Commercial insurance rates in the United States slipped to plus 2 percent in June 2014 from plus 3 percent in May, according to latest analysis from online insurance exchange MarketScout.

Richard Kerr, CEO of MarketScout, said:

The commercial market continues to adjust downward as a result of improved underwriting results and an abundance of capacity. In the aggregate, rates are still up slightly but the trend for rate moderation continues.”

By coverage class, umbrella, workers’ compensation, D&O, and EPLI all moderated from the prior month with each registering a plus 1 percent rate increase.

Workers’ compensation rates slipped the most from plus 3 percent in May to plus 1 percent in June.

By account size, small (up to $25,000) and medium accounts ($25,001 up to $250,000) remained at plus 3 percent. Large accounts ($250,001 to $1 million) slipped from plus 2 percent to plus 1 percent and jumbo accounts (over $1 million) were up 0 percent or flat.

Kerr noted that this is the first plus 0 percent measurement since the market turned towards rate increases in November 2011:

It’s not surprising the jumbo accounts have gone flat as the name brand account continues to allure underwriters despite the lower ROE. There is a pricing benefit to being a name brand, Fortune 1000 insurance buyer.”

By industry class, manufacturing, transportation and energy all adjusted their month-over-month rate increases downward by 1 percent.

Check out latest information from the I.I.I. on financial results and market conditions.

The more than two-year upward trajectory in rates for commercial insurance in the U.S. is in jeopardy as U.S. insurers, supported by reinsurers, catastrophe bonds and insurance linked securities are finding ample reasons to start fighting over business, according to online insurance exchange MarketScout.

Richard Kerr, CEO of MarketScout noted that the composite rate for U.S. commercial insurance remained in positive territory increasing an average of 2 percent in April 2014, but warned that rate reductions are likely by year end if the current trend continues.

If you are in the market on a daily basis, you can almost feel a change in the wind. No reasonable insurer wants rate reductions. However, everyone seems to feel they are coming.”

By line of coverage, Kerr noted that catastrophic property rates will probably hold steady in the next four months with hurricane season about to start:

If the wind doesn’t blow, get ready for a solid round of rate reductions at year-end.”

On workers’ compensation, Kerr noted that it is and always has been a tough class of business with an extremely long tail:

In the last six months, several major workers’ compensation insurers have exited the market. Many others have dramatically cut back their writings. We expect workers’ compensation insurers to hold steady with small rate increases continuing.”

In its April market analysis MarketScout noted that rates for property, business interruption, BOP, umbrella, auto, workers’ compensation, and D&O all moderated one percent.

By account size, medium accounts ($25,001 to $250,000 premium) were down from plus 3 percent to plus 2 percent. Large accounts ($1 million plus premium) adjusted from plus 3 percent to plus 1 percent.

By industry class, rates for manufacturing, contracting, and public entities all moderated one percent.

Business Insurance reports on this story here.

Online insurance exchange MarketScout reported that rates for commercial insurance in the United States were up slightly in March 2014, extending the slow but steady rate increases business owners have been paying since November 2011.

The composite rate for property and casualty coverages in the U.S. was up 3 percent in March, compared to plus 2 percent in February.

Richard Kerr, CEO of MarketScout said the ongoing rate adjustments come as insurers look to meet profit targets:

Insurers target a specific ROE. Despite improving margins, insurers are still not meeting their profit targets, thus the continued marginal increases.”

BOP, commercial auto, and workers compensation led the way with rates up 4 percent. However, as PC360 reports, both commercial auto and BOP were flat compared to February increases, while workers compensation was up 1 percent over the prior month.

By account size, any account with premium from $25,000 to $1 million paid a 3 percent increase compared to 2 percent the prior month.

By industry classification, manufacturing and energy accounts paid more than the prior month with manufacturing up to plus 4 percent and energy up plus 2 percent.

Check out I.I.I. information on financial results and market conditions.

Warren Buffett’s annual letter to Berkshire Hathaway shareholders released Saturday notes that Berkshire’s attractive insurance economics exist only because it has “some terrific managers running disciplined operations that possess strong, hard-to-replicate business models.”

As he goes on to extol the virtues of the major units, Buffett comments that Berkshire is far more conservative in avoiding risk than most large insurers.

To put this in perspective, the Oracle of Omaha notes:

For example, if the insurance industry should experience a $250 billion loss from some megacatastrophe – a loss about triple anything it has ever experienced – Berkshire as a whole would likely record a significant profit for the year because of its many streams of earnings. And we would remain awash in cash, looking for large opportunities if the catastrophe caused markets to go into shock. All other major insurers and reinsurers would meanwhile be far in the red, with some facing insolvency.”

As Artemis blog reports, being diversified and cash-rich Berkshire Hathaway’s insurance and reinsurance businesses continue to pay claims and liabilities while the insurance and reinsurance premium float builds and generates significant upside on the investment side of Buffett’s businesses.

Indeed, Berkshire’s attractive insurance economics are due in no small part to the successful growth of that premium float over the course of years.

Buffett’s letter tells us that Berkshire’s insurance operations again operated at an underwriting profit in 2013 – for the 11th consecutive year – and increased its float.

Buffett writes:

During that 11-year stretch, our float – money that doesn’t belong to us but that we can invest for Berkshire’s benefit – has grown from $41 billion to $77 billion.”

Buffett adds that further gains in float will be tough to achieve, but that if it does experience a decline in float at some future time, it will be very gradual — at the outside no more than 3 percent in any year.