Weak Economy and Insurers

The release of the p/c industry’s first quarter 2008 results yesterday revealed that economic turbulence is having an impact on financial and underwriting performance. The industry’s annualized statutory rate of return on average surplus fell to 6.4 percent during the first quarter down by more than half from 13.2 percent during the first quarter of 2007. The spillover of the housing and credit bubble collapse into the mortgage and financial guarantee segments of the p/c industry were largely responsible. Yet, fundamentally, the p/c industry remains quite strong financially.

In his commentary on the results I.I.I. president Dr. Robert Hartwig notes that while insurers are not immune to economic downturns, the impacts in terms of growth and profitability will be somewhat muted. This is because in terms of revenue, p/c insurers are not as economically vulnerable as other sectors like homebuilders or carmakers. Approximately 98 to 99 percent of insurer exposure growth is tied to renewal business. In contrast, 100 percent of a homebuilder’s or car manufacturer’s growth comes from new business. Dr Hartwig explains: “Insurance is, in effect, an economic necessity, not a discretionary purchase.† Check out Dr Hartwig’s full commentary at: http://www.iii.org/media/industry/financials/2008firstquarter/  

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