2008 Joint Industry Forum


2007 Another Profitable Year, But Long-Term Focus Key, Insurance Execs Say

Catastrophes Remain the Wild Card, Amid Concerns about Homeowners Line


Loretta Worters (Insurance Information Institute) 
(212) 346-5545

NEW YORK, January 10, 2007 — Despite two consecutive years of underwriting profitability, the insurance industry should guard against complacency, said chief executive officers (CEOs) participating in the View from the Inside Looking Out, a panel discussion at the 12th annual Property/Casualty Joint Industry Forum.

“2007 is a terrific year following on 2006,” said Ramani Ayer, chairman & CEO, The Hartford. But, he cautioned, “You really are looking at two good years, over a period of anemic years, so it’s not like the industry has returned to its shareholders at outstanding levels over a sustained period of time.”

“To look at two good years and start to pat yourself on the back and say we have done a terrific job as an industry is a sentiment that probably our shareholders wouldn’t agree with. We need longer, extended periods of profitability,” added Ayer.

Moderated by Frank Nutter, president, Reinsurance Association of America, the session offered insights into the way insurance company CEOs are viewing the P/C industry’s 2007 underwriting profit and a look ahead at 2008.

Evan Greenberg, chairman, president & CEO, ACE Limited, noted that a number of things went right in 2007, including relatively light catastrophes and favorable prior period recognition, but he predicted 2008 would be a more marginal year.

“Next year I think combined ratios are going to be markedly under pressure versus this year. You see the rate deterioration that is occurring,” he said.

CEO panelists agreed that they expect 2008 to be another profitable underwriting year, barring major catastrophes, but not necessarily across all lines of business.

“It depends on where you play. Certain lines will perform better than others, but it is not across the board like it was a few years ago,” said Anthony Kuczinski, CEO, Munich Re America.

Focusing on personal lines, Tom Wilson, president and CEO, the Allstate Corporation, noted that it’s not all about price. “In the auto business, people have been investing in product, technology, marketing and service. This raises the value of the product to the consumer and in our experience the consumer is prepared to pay for that.”

Catastrophe risk remains a major factor for personal lines insurers, however. “The wildcard has always been catastrophes and will there be another series of storms. Whether it’s four in one year, or three big ones in one year, it hasn’t been so long that we’ve forgotten,” Wilson said.

In a wide ranging discussion, CEOs covered a range of topics including slowing premium growth, mergers and acquisitions, the subprime crisis, and homeowners insurance.

They voiced concern about homeowners insurance, describing it as a troubled line of business in coastal zones where the ability to charge a premium commensurate with the risk is a key challenge.

Nutter cited an Aon study showing that the return on equity (ROE) for homeowners nationwide was just 7 percent and that to achieve a 14 percent ROE where the industry is overall, would require rate increases of 23 percent.

“Another way to ask that question is would you pay another $150 to protect your most valuable asset that makes up one-third of your net worth? Most people wouldn’t, most people spend more than that at Starbucks in a year,” Wilson said.

Gerald Schmidt, president & CEO, Mutual of Enumclaw noted that the 10-year return on net worth in the homeowners line across the U.S. is 2.8 percent. “That speaks volumes relative to the average annual profitability of that line of business.”

“There is a collision of interests. The intersection where that collision occurs is the unreasonable expectations of homeowners relative to the cost and price of the product, and the desire for insurers to have an adequate rate of return. Currently we are losing that battle in the court of public opinion,” he said.

The Property/Casualty Insurance Joint Industry Forum
was created to provide leaders from the widest spectrum of the P/C insurance and reinsurance industry with an opportunity to meet with each other in discussion of topics of general interest.

The sponsoring organizations of the Forum represent a broad base of insurance interests and audiences. They include: ACORD, American Institute for Chartered Property Casualty Underwriters, American Insurance Association, the Association of Bermuda Insurers and Reinsurers, The Geneva Association, Institute for Business & Home Safety, Insurance Information Institute, Insurance Institute for Highway Safety, International Insurance Society, Inc., ISO, National Association of Mutual Insurance Companies, National Council on Compensation Insurance, National Insurance Crime Bureau, Property Casualty Insurers Association of America and Reinsurance Association of America.