P/C Industry Profits Rebound As Underwriting Results Improve

Profitability in the property/casualty insurance industry rebounded sharply in 2012, despite $35 billion in insured losses from catastrophes, the majority of those from superstorm Sandy, according to I.I.I. president Dr. Robert Hartwig.

In his commentary on the industry’s 2012 year-end results, Dr. Hartwig says that the improvement was propelled chiefly by a growth in premiums and a  drop in both private insurer catastrophe and noncatastrophe related loss and loss adjustment expenses.

The industry’s overall net income after taxes (profits) surged by 72.3 percent in 2012 to $33.5 billion from $19.5 billion in 2011, pushing the industry’s return on average surplus to 5.9 percent for the year, up from 3.5 percent in 2011.

Despite paying $35 billion in catastrophe losses – the fourth highest year on record on an inflation adjusted basis – the industry benefited from a 4.3 percent jump in net written premiums, nearly a full point above the 3.4 percent gain a year earlier.

This was the strongest growth so far recorded in the post-crisis era, according to Dr. Hartwig.

In another sign of strength, overall industry capacity (policyholders’ surplus) rose to a record $586.9 billion as of December 31, 2012 – up $33.1 billion or 6.0 percent from $573.0 billion as of year-end 2011.

Dr. Hartwig noted:

The fact that the industry was able to rapidly and fully recoup its losses from 2011 and reach a new record high in terms of capital strength in 2012 despite Sandy is further evidence of the P/C insurance industry’s remarkable resilience in the face of extreme adversity.

The bottom line is that the industry is, and will remain, extremely well capitalized and financially prepared to pay very large scale losses in 2013 and beyond despite the fact that insurers have paid catastrophe losses in each of the past two years that are more than 40 percent higher than the $23.9 billion average over the past decade.”

The industry’s results were released by ISO and the Property Casualty Insurers Association of America (PCI).

As Cyber Threat Grows, So Does Need for Protection

Despite a growing awareness of the risks, six in 10 companies lack cyber liability insurance, according to an annual survey by Towers Watson.

The increasing number of cyber attacks, along with breaches in security and privacy, are forcing corporate risk managers to reconsider how they protect their company’s data and proprietary business information.

Towers Watson’s Risk and Finance Manager Survey found that the average policy limits purchased for network security/privacy liability policies were $18.1 million – a significant 46 percent increase year over year.

In addition, nearly two-fifths (39 percent) of respondents purchased network security/privacy liability policies, up 11 percentage points from last year.

When asked why they had not purchased a policy, some 31 percent (a 10 percentage point decrease from last year) said their internal IT department/controls were adequate.

Towers Watson warned that the financial and reputational costs companies face could be enormous if they don’t develop comprehensive risk strategies to thwart cyber attacks.

Towers Watson’s findings are in line  with a new report from the Insurance Information Institute (I.I.I.) that notes that despite broad awareness that cyber risks and cyber security are a serious threat, a majority of companies today still do not purchase cyber risk insurance.

However, this is changing, according to the I.I.I. Recent industry analysis suggests that more companies are now purchasing cyber coverage and that insurance has a key role to play as companies and individuals look to better manage and reduce their potential financial losses from cyber risks in future.

Download Cyber Risks – The Growing Threat.

Texas Fertilizer Plant Explosion

Media reports over the weekend suggest some residents were allowed back to their homes days after a Texas fertilizer plant explosion left 14 dead and  more than 160 injured.

A fire last Wednesday at the fertilizer plant in West, Texas, some 80 miles southeast of Dallas,  triggered the deadly explosion, though investigators have yet to pinpoint the exact cause.

The United States Geological Survey (USGS) recorded the explosion as a 2.1-magnitude tremor.

GCCapitalIdeas has  a  summary  of the event here.

Satellite images on the PHOTOblog at NBC news via DigitalGlobe show West, Texas before and after the explosion. More than 150 buildings were damaged or destroyed in the explosion.

Business Insurance reports that in the wake of the disaster, questions about risk management planning adequacy and insurance coverage abound.

It quotes Joe Woods, vice president of state government relations for the Property Casualty Insurers Association of America, saying that the incident could trigger a broad range of insurance coverage that includes commercial property, business interruption, third-party liability, health and personal lines.

PC360 also reports on the insurance implications of the event here.

Check out I.I.I. facts and statistics on man-made disasters.

RMS: Boston Bombing Will Impact Terrorism Market

While insured property losses from the Boston Marathon bombing are small, the insurance of sports events is likely to be impacted, according to catastrophe modeling firm  RMS.

Dr. Gordon Woo, catastrophist at RMS noted that the shortage of terrorism insurance cover in the years after 9/11 had led to the securitization of the cancellation risk of the 2006 FIFA World Cup.

So while the property insurance loss is small, the Boston Marathon bombing may well have a significant influence on the terrorism insurance market.†

Dr. Woo’s comments came as investigators moved closer to identifying possible suspects in Monday’s bombing which left 3 dead and more than 170 injured.

RMS says most of the property damage appears to be within 10-20 feet of the explosions, and insured property losses are unlikely to exceed $1 million. However, it believes the costs of business interruption as a result of security restrictions made after the event may be a larger source of insurance claims.

The Boston marathon attack was the first high-profile successful act of terror in the U.S. since 9/11, but it should be seen as one of the dozens of terrorist plots launched against the U.S. homeland since then.†

RMS noted that the use of smaller sized lethal explosive devices has been the preferred attack mode in recent terrorist plots. Street events, like the marathon, are inherently vulnerable because while they are very large crowds public access is unrestricted.

Dr. Woo added that plots involving a small number of operatives, such as seems to be the case in the Boston bombing, are the most difficult to prevent:

Terrorism attacks remain a very real threat; there have not been larger attacks only because of the success of plot interception.†

Global Reinsurance has more on this story.

Check out I.I.I. facts and stats on terrorism risk.

Boston Marathon Explosions

While it’s too early to answer many of the questions arising from twin explosions at yesterday’s Boston Marathon, what we do know is that three people are dead and more than 140 injured in the bombings.

Our thoughts and prayers are with the victims, all those injured and their families.

The Boston Globe reports that much of Back Bay is locked down to protect the crime scene and the investigation underway is being directed by the FBI.

Boston.com’s Big Picture has images of the scene at the finish line of the marathon.

Right now, it appears the White House is describing the incident as a potential terrorist attack.
A Politico.com article cites a White House official saying:

Any event with multiple explosive devices – as this appears to be – is clearly an act of terror, and will be approached as an act of terror. However, we don’t yet know who carried out this attack, and a thorough investigation will have to determine whether it was planned and carried out by a terrorist group, foreign or domestic.†

Insurance Information Institute (I.I.I.) president Dr Robert Hartwig narrowly missed the blasts after watching his son cross the finish line of the marathon more than an hour earlier.

In an interview with PC360, Dr Hartwig said it was too soon to know the insurance implications of the event, but it looked like damage to property was light. Dr. Hartwig added that injured public safety and marathon workers would certainly be covered by workers compensation.

An I.I.I. advisory suggests  reporters with questions about the potential insurance implications of the Boston Marathon explosions contact Dr. Hartwig.

Check out the I.I.I. website for further updates.

Study: Majority of Distracted Drivers Lost in Thought

While the dangers of texting and driving get a lot of headlines, you might be surprised at the findings of a new study by Erie Insurance that show daydreaming behind the wheel is even more dangerous.

Erie’s analysis found that 62 percent of distracted drivers involved in fatal car crashes were described by police as daydreaming or “lost in thought†.

The police report data analyzed by Erie in the Fatality Analysis Reporting System (FARS) reveal that of the more than 65,000 people killed in car crashes over the past two years, one in 10 were in crashes where at least one of the drivers was distracted.

Erie did  point out  that because FARS data on distraction is based largely on police officers’ judgment at the time of the crash, and because some people may be reluctant to admit they were distracted when being interviewed by police after a fatal car crash, the numbers are difficult to verify and may, in fact, under-represent the seriousness and prevalence of driving distractions.

As well as daydreaming, police listed several more specific types of distractions.  Below are the  top 10 distractions involved in fatal car crashes:

CSU on Hurricane Season: “It only takes one”

An active 2013 Atlantic hurricane season appears likely based on the latest predictions of the major forecasters.

In its just-released forecast, Colorado State University’s Tropical Meteorology Project is predicting 18 named tropical storms, including nine hurricanes and four major hurricanes (Category 3-4-5).

The CSU team also put the probability of U.S. major hurricane landfall at about 140 percent of the long-period average. It says:

We anticipate an above-average Atlantic basin hurricane season due to the combination of an anomalously warm tropical Atlantic and a relatively low likelihood of El Nià ±o. Coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them, and they need to prepare the same for every season, regardless of how much activity is predicted.†

Meanwhile, London-based consortium Tropical Storm Risk is calling for 15 named storms, of which it predicts eight will become hurricanes, and three major hurricanes. TSR forecasts Atlantic basin tropical cyclone activity at about 30 percent above the 1950-2012 long-term norm, but slightly below the recent 2003-2012 10-year norm.

And Weather Services International just issued its forecast of 16 named storms, nine hurricanes and five intense hurricanes, but added that this still may be a bit conservative if the warm tropical ocean temperatures persist heading into the season.

Updated forecasts will be released around June 1, when hurricane season opens.

Artemis blog has a great round-up of the latest forecasts on its 2013 Atlantic Hurricane Season page.

Also check out this recap of the 2012 hurricane season, courtesy of NOAA Visualizations:

MarketScout: U.S. Commercial Rate Index Up 5% in March

Large U.S. commercial insurance buyers are being hit with rate increases and no longer assured of a more competitive price, according to the latest analysis from online insurance exchange MarketScout.

Richard Kerr, CEO of MarketScout noted that while historically brand name or large accounts have benefited from more aggressive pricing, in March 2013 underwriters more frequently charged an appropriate premium.

Kerr said:

Our most recent data showed a significant reversal in pricing strategy for both large ($250,001 to $1 million premium) and jumbo (over $1 million premium) accounts. In February, rate increases for large accounts measured plus 3 percent and for jumbo accounts plus 2 percent. These increases adjusted to plus 5 percent for both in March.†

Kerr added that large account pricing is the subject of considerable chatter among underwriters so MarketScout will be monitoring the situation very carefully.

The  survey found  that the commercial insurance rate index for the United States rose 5 percent in March 2013.

Workers’ compensation, professional and small commercial all received more aggressive month-over-month price increases, MarketScout said.

By industry class, manufacturing continues to post the largest rate increases as compared to prior year results, followed by contracting, service, habitational, and transportation.

Insurance Journal  has more on this story.

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

Marine Insurers Feel the Impact of Sandy too

As we look ahead to the start of the 2013 Atlantic hurricane season marine insurers are among those that will be closely monitoring forecast storm activity.

Annual spring statistics recently released by the International Union of Marine Insurance (IUMI) noted that the cost of Superstorm Sandy to the global marine market has been put at between $2.5 billion to $3 billion – effectively wiping out the entire U.S. marine premiums for 2012.

The statistics which cover the cargo, ocean hull and offshore energy sectors remain a litmus test for the marine insurance market and the impact of Sandy will define 2012 in the eyes of underwriters, IUMI said.

While Superstorm Sandy’s main areas of impact were the states of New York and New Jersey, it was one of the largest storms ever and its impact stretched over 1,000 miles from the Great Lakes to Boston.

In its  analysis of the cargo market, IUMI noted:

The total insured loss from Sandy is currently estimated to be between $25 billion-$30 billion of which approximately 10 percent or $2.5 billion-$3 billion is for the marine business.

It’s still unclear how much of that was for ocean cargo, but we do know that major industry groups such as automotive, coffee/cocoa trade and fine arts were particularly hard hit. There is also a substantial inland marine loss.

To put the claim in perspective this one loss has eroded an entire years worth of premium for the whole U.S. marine market.†

Insurance Journal has more on this story here.

Lessons learned from Superstorm Sandy are among the topics to be addressed at the 20th Biennial Marine Insurance Issues Seminar sponsored by the American Institute of Marine Underwriters (AIMU) on May 8 in New York City. The conference will be held at the New York Marriott Downtown, 85 West St.

To register for the seminar or for further information click here.

Despite Storms, Property Claims Satisfaction Remains High

Despite a second consecutive year of historic storm losses in 2012, homeowners insurance customers remain highly satisfied with the property claims experience.

According to the just-released J.D. Power and Associates 2013 Property Claims Satisfaction study, overall satisfaction is 832 (on a 1,000 point scale), down just one point from last year’s study, but up from 823 in 2011 and 818 in 2010.

The study, now in its sixth year, measures satisfaction with the property claims experience among insurance customers who filed a claim for damages covered under their homeowners’ policy by examining five factors: settlement; first notice of loss; estimation process; service interaction; and repair process.

In a press release Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates, says:

Despite increases in both the frequency and average severity of property damage in the U.S. during the past two years, the fact that customer satisfaction remains high is a testament to how diligently the personal insurance industry has responded to its customers.†

Another key takeaway from the study is that satisfaction with the service interaction process declined by nine points in 2013, compared with 2012.

J.D. Power reports that much of that decline in satisfaction likely is due to the continuing trend of homeowners filing their claim via direct channels – typically online or by calling a call center – rather than through an agent.

Some 68 percent of customers file their recent homeowners claim through direct channels, up from 57 percent in 2012, but satisfaction is 50 points higher among customers who file a claim through their agent, than those who file a claim via direct channels.

The 2013 Property Claims Satisfaction study is based on more than 5,500 responses from homeowners insurance customers who filed a property claim between May 2011 and January 2013.