Insurance Blog

What a difference a year (and a half) can make. In April 2008, ratings agency Fitch published a report indicating that while the outlook for commercial real estate (CRE) related investments had deteriorated, it did not anticipate a major impact on U.S. life insurers’ capital or ratings in 2008. Now, Fitch has published a revised report projecting that U.S. life insurers may incur CRE-related investment losses in the range of $18.5 billion to $22.6 billion through 2011. Why the reversal in fortunes? Fitch reports that commercial real estate fundamentals are softening as rents are declining and vacancies increasing in response to the broader economic downturn. It expects all commercial property types to experience declines in income and value in this stressed environment. On a positive note, Fitch believes the industry’s loss exposure to CRE-related assets is manageable in the context of the industry’s strong capital position and earnings (industry capital […]

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Despite the economic recession and tumults in the stock market, all major categories of institutional investors, including insurers, have remained fundamentally committed to the same investment policies they were adopting prior to the credit crunch. In its annual Institutional Investment Report, The Conference Board notes that insurance companies were the least affected of all the institutional investors by plunging stock values due to their lower exposure to stock. “The property/casualty segment, in particular, reported asset distributions substantially identical to those of prior years, when investments in equities were never increased to the level that preceded the U.S. recession of 2001-2002,” the report states. I.I.I. data shows that p/c insurers are conservative investors, with some two-thirds of their investment assets held in bonds. The Conference Board report notes that by the end of 2008, institutional investors as a whole had only 36.6 percent of their assets in equities, down from 47.2 […]

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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 […]

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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. […]

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The question of whether U.S. property/casualty insurance loss reserves will be adequate in the years ahead is gaining attention.  A panel of actuaries and analysts at Standard & Poor’s recent Ratings Service insurance conference warned that some property/casualty insurers could be in for a rude awakening with respect to their reserve practices. Concerns were expressed that broad expectations for a coming positive turn in the business cycle could be overdone and that reserve releases might be premature, leaving insurers exposed to unforeseen future liabilities. In a press release S&P notes that prudent reserving is the bedrock of the property/casualty industry’s financial strength. “The property/casualty insurance sector’s ability to properly estimate its loss and loss-adjustment expense reserves directly affects its financial strength,” the ratings agency said. Indeed it does. According to an A.M. Best report, deficient loss reserves and inadequate pricing are the leading cause of U.S. p/c insurer impairments, accounting […]

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Amid the unprecedented economic crisis, the First Quarter RIMS Benchmark survey of North American corporate risk managers finds that insurance premiums for businesses continued to slide towards a soft landing, rather than an abrupt reversal resulting in rate increases. While banks and other financial institutions bought directors and officers (D&O) insurance at substantially higher rates, the rest of the commercial insurance market in the first three months of 2009 saw an ongoing trend of little or no change in rates, according to RIMS. Data from the survey indicates that: 

General liability premiums fell 3.8 percent for policies renewing during Q1 2009, compared to a 5.9 percent decline in Q4 2008. 

The average workers compensation premium fell 2.5 percent, similar to price decreases of the past several quarters. 

The average property renewal was flat for the first quarter compared to a decline of 3.8 percent in Q4 2008. However premiums changes for individual property […]

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The property/casualty (P/C) insurance industry’s full year 2008 results released yesterday brought the industry’s worst financial performance since 2001. The industry’s annualized statutory rate of return on average surplus fell to 0.5 percent in 2008, down sharply from the 12.4 percent return recorded in 2007. In his commentary on the results I.I.I. president Dr. Robert Hartwig notes that the sharp decline in profitability was primarily due to poor investment market performance, some $26 billion in catastrophe losses, persistent soft market conditions and a spillover of the housing and credit bubble collapse into the mortgage and financial guarantee segments of the P/C insurance industry. The toll: a 96.2 percent plunge in profits and a 12 percent drop in capacity (policyholders’ surplus). Yet, in the final analysis, the P/C insurance industry once again demonstrated its resilience, as it has for centuries. Dr. Hartwig notes: “In stark contrast to banks and investment banks, the fundamental business of […]

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More signs of market stability are indicated in the latest commercial lines insurance pricing and profitability trends survey (CLIPS) from Towers Perrin. The survey found that commercial insurance prices declined just 3 percent during the fourth quarter of 2008 — their smallest reduction in the past eight quarters. According to Towers Perrin, product lines and market segments experiencing the greatest reductions in pricing over the last two years, such as workers compensation, property and large accounts, may have begun to stabilize. A press release cites Jeanne Hollister, Towers Perrin managing principal and property/casualty insurance practice leader for the Americas: “Although the property/casualty industry remains strongly capitalized in the aggregate, we expect that the surplus declines in 2008 will result in increased conservatism in companies’ risk appetite and that this, in turn, will cause general price firming to occur in 2009.” The survey comes just a week after online insurance exchange […]

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Online insurance exchange MarketScout said the average property/casualty rate decrease was 8 percent in February 2009, compared to a double-digit rate decrease of 14 percent a year ago. According to its analysis a slow moderation in rate decreases continues as insurers evaluate their 2008 results and the impact of a slowing economy in 2009. MarketScout founder and CEO Richard Kerr observed: “Four large insurance companies are drawing a line in the sand and demanding rate stabilization. If it sticks, we will see a further flattening of reductions very soon.” General liability and business owners policies (BOPs) experienced the largest rate decreases at 9 percent. The line experiencing the smallest rate decrease was D&O liability (down 4 percent). Large accounts ($250,000-$1 million premium) saw an average rate reduction of 9 percent while small accounts (up to $25,000 premium) were down 8 percent, according to MarketScout. Check out latest I.I.I. information on […]

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In today’s tumultuous financial climate, words of wisdom can be invaluable. Tomorrow Berkshire Hathaway chairman Warren Buffett’s annual letter to shareholders will be released. For those who follow the annual observations of the Oracle of Omaha, the letter comes at a timely moment. Today a revised Bureau of Economic Analysis (BEA) report indicates the U.S. economy contracted at an annual rate of 6.2 percent in the fourth quarter of 2008 — a much more accelerated rate than expected. And forecasters from the National Association for Business Economics (NABE) earlier this week suggested the U.S. economy will remain in the doldrums for 2009, with a meaningful recovery not expected until 2010. So what about insurers? Latest Insurance Information Institute (I.I.I.) presentations offer key information on the state of the P/C industry amid the financial crisis. The potential impact of the $787 billion stimulus package (the American Recovery and Reinvestment Act) on property/casualty […]

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