Tag Archives: Industry Financials

Economic Concerns Cloud Improved Industry Outlook

U.S. insurance industry executives are somewhat optimistic about business conditions, despite ongoing concerns about the economy as a whole, according to an annual survey conducted by KPMG.

More than half (51 percent) of the 300 executives surveyed at KPMG’s 22nd annual Insurance Industry Conference say that those business conditions most relevant to their businesses have improved.

However, 22 percent predict another downturn-double dip before the economy begins to significantly recover, and 64 percent believe the recovery will not occur until 2012 or later.

Facing this economic environment, only 41 percent of execs surveyed expect their company to perform above expectations next year – a decline of 8 percent compared with last year’s survey.

Executives surveyed also say improving underwriting profit may be challenging in the next three years. Some 62 percent see only a moderate ability to increase underwriting profit, while more than one-third (34 percent) characterized the chance of increased profit as “weak.†

Asked to identify the most significant challenges they face in the next three to five years, 44 percent of execs cited pricing risk (the risk associated with adequately pricing insurance products) to be the most significant, followed by regulatory/market conduct risk.

Insurance Journal has more on this story.

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

Market Remains Soft

A lengthy soft market coupled with the recession is creating a lot of pain for everyone: insurers, reinsurers, agents and brokers, according to Richard Kerr, CEO of online insurance exchange MarketScout.

His comments came as MarketScout’s latest analysis reveals the composite rate for U.S. property and casualty insurance was down four percent for September 2010, unchanged from a year ago.

By account size, rates were most competitive for accounts over $1 million in premium (down 5 percent), and by industry, service contractors are enjoying the largest rate decreases (minus 5 percent), according to MarketScout.

General liability was the most aggressively priced product with an average rate reduction of minus 5 percent, followed by commercial property and inland marine at minus four percent.

D&O liability, employment practices liability (EPL), fiduciary and crime were the coverage classes experiencing the smallest decreases (minus 1 percent).

Kerr added:

Everyone is fighting and scratching for market share. If rates don’t go up soon and the economy remains in the doldrums, the fighting will only get worse.†

In August, MarketScout predicted an overall  soft market for the balance of 2010, barring a major catastrophic event.

Check out I.I.I. information on the industry’s financial results and market conditions.

First Half Results: Growth in 2011?

There was some good news and the prospect of more in the property/casualty (P/C) insurance industry’s first half 2010 results, announced yesterday.

A couple of takeaways: profits are recovering, industry capacity (policyholders’ surplus) is rebounding, and premium growth may be on the horizon.

The industry’s net income after taxes (profit) rose to $16.5 billion in the first half, up from $6 billion in the first half of 2009. This pushed the industry’s annualized statutory rate of return on average surplus to 6.3 percent during the first half, compared to 2.6 percent in the first half of 2009.

In his commentary on the results, I.I.I. president and economist Dr. Robert Hartwig says:

The first half figures are a welcome beginning to the year after several years of tough first halves. The results also bode well for the full year. During calendar year 2009 and 2008, the industry’s full year returns were 5.8 percent and 0.6 percent, respectively.†

Another piece of good news is that the industry’s claims-paying capacity (as measured by policyholders’ surplus) remains at near all-time record highs. Policyholders’ surplus increased by $19.1 billion or 3.7 percent to $530.5 billion, up from $511.4 billion at the end of 2009. Dr. Hartwig observes:

The bottom line is that the industry is extremely well capitalized and financially prepared to pay very large scale losses, if necessary.†

Dr. Hartwig  notes that while net written premiums were flat during the first half of 2010 – the combination of a 1.3 percent decline during the first quarter and a 1.3 percent increase in the second – the second quarter’s gain snapped a 12-quarter losing streak during which premiums written had declined every quarter dating back to the second quarter of 2007.

Sequentially smaller declines in premium growth since mid-2009 combined with positive premium growth in the second quarter suggest that the free fall in premiums that began three years ago is now over. Moreover continued growth during the second half of 2010 would lock in positive premium growth for full-year 2010 and place the industry on a trajectory for positive premium growth in 2011.†

The industry has not recorded positive premium growth on an annual basis since 2006.

Check out I.I.I. information on the industry’s financial results and market conditions.

Rebound in Claims-Paying Capacity Shows Industry Resilience

The fact that property/casualty insurers recovered more quickly and completely than virtually any other segment of the financial industry is concrete proof that subjecting insurers to bank-style regulation would constitute a significant policy error, according to I.I.I. president Dr. Robert Hartwig.

Such a move would needlessly raise insurance costs for hundreds of millions of insurance consumers and would unfairly require insurers to subsidize the reckless lending practices and speculative activities of failed banks, he added.

Commenting  on the industry’s first quarter 2010 financial results, Dr. Hartwig said the rebound in the industry’s claims paying capacity (otherwise known as policyholder surplus) was perhaps the most extraordinary sign of the P/C industry’s resilience over the past year.

Dr. Hartwig noted that policyholders’ surplus increased by $29.2 billion, or 5.7 percent, to $540.7 billion during the quarter, up from $511.5 billion at the end of 2009, although after adjusting for a unique transaction the figure stands at $518.2 billion. He wrote:

The bottom line is that P/C insurance industry capacity is within 1 percent of its all time record high just one year after reaching its crisis low even after excluding the impact of the unique transaction noted previously.

Given increased market volatility in the second quarter of 2010, including a substantial drop in major stock market indices, the pace of growth in policyholders’ surplus will likely be more subdued in the second quarter. The bottom line, however, is that the industry is extremely well capitalized.†

Dr. Hartwig added that from a public policy perspective, the rapid and effectively complete recovery in capacity could not come at a more propitious moment. Congress continues to consider financial industry reform, which could include the imposition of taxes on large financial firms (including insurers) in order to create a fund to resolve those that fail in the future.

However, P/C insurers have been arguing vociferously that they were not the cause of the crisis and that the industry does not pose a systemic risk to the financial system. Dr. Hartwig noted:

No P/C insurer failed because of the financial crisis (compared to 250 bank failures to date), no claim went unpaid and no policy was cancelled. Insurers continued to compete vigorously and introduce new products throughout the crisis whereas most banks radically scaled back their operations and product offerings.†

P/C Profitability: Strong But Incomplete Recovery

U.S. property/casualty insurers’ full year 2009 results show a strong but incomplete recovery from the recession and financial crisis, according to figures just released by ISO and the Property Casualty Insurers Association of America. The industry reported an annualized statutory rate of return on average surplus of 5.8 percent in 2009, up sharply from 0.6 percent in 2008. However, net income after taxes in 2009 totaled $28.3 billion, nearly ten times the $3.0 billion earned in 2008, but less than half the $62.5 billion earned in 2007. Similarly, insurers’ 5.8 percent overall rate of return for last year was less than half the 12.4 percent rate of return for 2007. In his commentary on the results, I.I.I. president Dr. Robert Hartwig observes that the magnitude and speed of the turnaround is truly remarkable given the length and depth of the crisis, though the industry’s profit recovery is incomplete. According to Dr. Hartwig, key factors driving 2009’s recovery include vastly improved investment market conditions in the final three quarters of the year, a 61 percent decline in catastrophe losses and significant releases of prior year reserves. “It is notable that the recovery occurred despite the fact that 2009 was the sixth consecutive year of declining premiums, which fell 3.7 percent last year, and amid recessionary economic conditions that continued to destroy insurance exposure,† he says. Perhaps the most extraordinary sign of recovery was the industry’s rebound in claims paying capacity (as measured by policyholders’ surplus). Policyholders’ surplus increased by $54.2 billion to $511.5 billion or 11.8 percent during the year, up from $457.3 billion at the end of 2008. The reversal is notable and important, according to Hartwig. “The bottom line is that P/C insurance industry capacity came within 2 percent of its all time record high just nine months after reaching its crisis low. Given continued favorable market conditions in the first quarter of 2010, it is quite likely that industry capacity reached a new record high, despite lingering difficulties in the overall economy,† he adds.

Stable P/C Rating Trends

Despite some bumps, rating trends for U.S. property/casualty insurers are stable, according to A.M. Best. In its 2009 Rating Trend Review, A.M. Best says that while the industry’s results are likely to be pressured in 2010, rating actions are not expected to move profoundly in one direction and the number of upgrades/positive outlooks and downgrades/negative outlooks will be fairly balanced over the next year. The comments came as the number of downgrades of Best’s insurer financial strength ratings in 2009 outpaced upgrades for the first time since 2005 even as key financial measures across the  p/c industry improved. Downgrades of p/c insurers totaled 68 in 2009, up from 57 in 2008 and the highest total since 2005 when 76 downgrades occurred among p/c insurers, while upgrades totaled 59, the same as in 2008. However, nearly 20 percent of all downgrades in 2009 were within one organization and its group of companies. “Although downgrades outpaced upgrades, a significant portion of the downgrades were within one organization, one segment and one geographic location,† A.M. Best observed. Upgrades to commercial lines insurers’ ratings outpaced downgrades 36 to 24 while personal lines insurers saw 23 upgrades but 44 downgrades. Of the 44 downgrades in personal lines, 10 or nearly 23 percent occurred within the U.S. subsidiaries of Kingsway Financial Services Inc. (KFSI). No U.S. reinsurer was upgraded or downgraded in 2009, according to A.M. Best. Check out I.I.I. presentations on the outlook for the p/c industry.

Rebound in Profitability for P/C Industry

Solid evidence of a substantial and sustained rebound in profitability for property/casualty insurers in the wake of the financial crisis that began in mid-2007 has emerged in the first nine month 2009 results just released by ISO and the Property Casualty Insurers Association of America. The industry reported an annualized statutory rate of return on average surplus of 4.5 percent through the first nine months of 2009, up sharply from 1.1 percent during the same period in 2008. In his commentary on the results, I.I.I. president Dr. Robert Hartwig noted that as recently as the first quarter of 2009 the industry recorded a negative rate of return. Moreover, stable investment market conditions and modest catastrophe losses since the end of the third quarter through late December guarantee that full-year profitability in 2009 will be much higher than the 0.5 percent return recorded in 2008. In another sign of recovery capacity in the industry (as measured by policyholder’s surplus) rebounded for the second consecutive quarter after two years of decline. Policyholder’s surplus increased by $27.8 billion to $490.8 billion or 6.0 percent during the quarter, up from $463.0 billion at the end of the second quarter. Hartwig observes that the reversal is notable and important given that P/C insurance industry capacity had plunged by an alarming $84.7 billion or 16.2 percent over the previous five quarters from the pre-crisis peak of $521.8 billion at the end of the second quarter of 2007. The recovery of asset markets, while welcome, is a leading indicator of economic recovery and does nothing to salve the impact of the ongoing six-year-old soft market as well as a significant reduction in demand for insurance driven by a deep global recession. “The weak pricing environment and the sharpest contraction in the economy since 1982 sent net written premiums tumbling by 4.5 percent, despite a long awaited return to economic growth,† Hartwig notes. While insurers remain cautious about the economy and financial market conditions, there is guarded optimism that both will continue to improve as the industry moves into 2010, he adds.

P/C Industry Profitability: In Recovery But Still Inadequate

The first evidence of a rebound in profitability for property/casualty insurers in the wake of the financial crisis that began in mid-2007 is apparent in the first-half 2009 results just released by ISO and the Property Casualty Insurers Association of America. The industry’s annualized statutory rate of return on average surplus of positive 2.5 percent during the first half of 2009 was down from 5.5 percent for the first half of 2008, but up from the negative 1.2 percent during the first quarter of 2009 and positive 0.5 percent for all of 2008. In his commentary on the results, I.I.I. president Dr. Robert Hartwig notes that the industry’s profitability was pulled back into positive territory primarily by a 60 percent reduction in realized capital losses, which shrank to $3.2 billion in the second quarter from $8.0 billion in the first, reflecting improved stock and bond market conditions. Secondary factors included improved underwriting conditions, with the second quarter combined ratio falling to 99.5 from 102.2 in the first quarter, leaving the first half combined ratio at 100.9. In another sign of recovery, capacity in the industry (as measured by policyholders’ surplus) rebounded for the first time in two years. Policyholders’ surplus increased by $25.9 billion or 5.9 percent to $463.0 billion during the second quarter from $437.1 billion at the end of the first quarter. Hartwig observes that this reversal is notable and important given that p/c insurance industry capacity had plunged by an alarming $84.7 billion or 16.2 percent over the previous five quarters from the pre-crisis peak of $521.8 billion at the end of the second quarter of 2007. The return to profitability and rising capacity during the first half are primarily attributed to improved investment market performance. At the same time, persistent soft market conditions and a deep recession have severely impacted the p/c insurance industry’s growth. While insurers remain cautious about the economy and financial market conditions, there is guarded optimism that both will continue to improve as the industry moves toward 2010.

First Quarter Financials

A hostile investment environment and shrinking economy had a significant impact on the financial and underwriting performance of the property/casualty (P/C) insurance industry in the first quarter of 2009. The industry’s annualized statutory rate of return on average surplus fell to negative 1.2 percent during the first quarter of 2009, down from positive 6.6 percent in the first quarter of 2008. The industry results were released by ISO and the Property Casualty Insurers Association of America. In his commentary on the results, I.I.I. president Dr. Robert Hartwig notes that the quarter’s sharp decline in profitability and shrinking capacity was primarily due to poor investment market performance, persistent soft market conditions, modest catastrophe losses, and a spillover of the housing and credit bubble collapse into the mortgage and financial guarantee segments of the P/C industry. However, excluding this segment and normalizing catastrophe losses reveals a much more modest decline in profitability. Here are some of the key Q1 2009 stats: net income after taxes fell $9.8 billion to negative $1.3 billion, from positive $8.5 billion in the first quarter of 2008; net written premiums fell 3.6 percent to $106.4 billion, breaking the previous record decline of 0.8 percent in 2008; industry policyholders’ surplus (the industry’s primary measure of capacity) fell by $19 billion or 4.2 percent to $437.1 billion from $456.1 billion at year-end 2008; net investment income fell by 8.7 percent to $11.7 billion; catastrophe losses (the one bright spot) totaled $2.9 billion during the first quarter, down 17.1 percent from $3.5 billion in the first quarter of 2008.