Soft P/C Market Persists Despite Poor Results

 

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Copyright 2009 Crain CommunicationsAll rights reserved Business Insurance

23 March 2009

1126 words


Soft P / C market in spite of poor performance, investment, cat losses drag down the profits of insurers in 2008

JUDY GREENWALD



Disasters, losses of investment, market and deteriorating underwriting results contributed to a miserable 2008 for the commercial property / casualty insurers.

And even though many observers, there are signs that the recent rate of decline is much smaller than in recent years, they disagreed as to whether the rate rise in May 2009.

Even excluding the huge $ 99.29 billion loss reported by American International Group Inc. for the year, 11 other insurers surveyed by Business Insurance recorded a decline of 73.1% of net income and all two losses and two-digit declines in net income.

Among other results of the survey:

* Net premiums written increased by only 1.3%, to $ 141.44 billion.

* The insurers reported a combined ratio of 98.8% for 2008 against a ratio of 90.8% for 2007.

* Policyholder surplus for the 10 insurers of this information has decreased from 10.4% to $ 117.5 billion.

Investment losses were a dominant factor in the results of last year, experts and analysts say.

`` This is the most problems and the hardest for the negative results for the industry,''said John L. Ward, CEO of Cincinnatus Partners LLP in Cincinnati.

`` The investment of problems last year really overwhelmed any issues with the underwriting cycle or concerns, and has been driving many of our discussions lately,''said James B. Auden, Chicago-based director at Fitch Ratings.

`` The loss of investment to the value of most companies under a lot of pressure,''said Paul Newsome, an analyst for Sandler O'Neill & Partners LP in Chicago. `` Some companies are doing better than we originally expected, and some do worse. Obviously, the most conservative societies are better than those with less of a conservative investment perspective'', he said.

`` You can not paint with a broad pinceau''la question of investment issues, accepted the Bill Bergman, an analyst with Morningstar Inc. in Chicago. Chubb Corp. and Travelers Cos. Inc., for example, `` seem to have avoided a fair amount of investment that are problems that affect a large part of the view (insurers), and move forward, I think their position on the market is strengthened.''

Disaster has also caused loss of property / casualty industry in 2008.

`` It was a difficult year for cats, so that led to loss ratios,''said Auden.

Meanwhile, declining prices and increased competitiveness of the market reflects the sweetness, "he says.

`` We did not see the hard market reality,''said Auden. `` We will be worse pensons'09 a subscription que'08 of view.''`` Despite a lot of cheerleading,''the rates are still down. Although May be done at a slower pace, `` things have not turned up on most lines.''

That being said, `` The market was not nearly as bad as it was, say, at the end of 90 years,''said Auden. `` I think the companies have a profit, but it does not reflect an adequate return on capital.''

The immediate prospects for a continuation of soft market, say observers.

Jeanne M. Hollister, Hartford Connecticut-based principal of Towers Perrin Management Americas ownership / insurance practice, the company reported in the fourth quarter of commercial insurance and cost of changing prices survey showed `` We see less in the way of price reductions that we saw a quarter over the past two years.''While the rates are still declining, `` we expect prices to firm in 2009, but it will be gradual,''she said.

`` I think the first quarter will be better than the fourth quarter, but I do not see a strong start,''said Newsome. For the remainder of 2009, `` I am more optimistic. I think there is a very good chance that during the year, companies will begin to raise prices,''but it will take time before they are reflected in operating results.

John Iten, Senior Director in New York, Standard & Poor's Corp., also said property prices or accidents in May later this year.

`` We're not quite at the inflection point yet where is the pricing, based on an average, upwards, but we are increasingly close and the best estimate at this stage is that we 'll get to this point in the second half of this year,''said Mr. Iten. However, the weak economy in May curb demand for insurance, he said.

Thus, while insurers in May to collect more premium than `` May not be enough to offset the lower amount of insurance that companies buy,''particularly in workers' compensation, which is based on the payroll and should `` pressure''because of layoffs, "said Iten.

However, Edward Keane, senior financial analyst at Oldwick, NJ-based AM Best Co. Inc., has a slightly different view. `` From what we heard, the rates will stabilize, probably in the second half of 2009 and if we see a rate hike, it will probably be in 2010.''

Mr. Newsome said another factor that could influence the rate is AIG. `` They are reported to be among the most aggressive towards lower prices. Should this change, it would be an important factor.''

The decline in layoffs are also a problem.

`` Preliminary reservation for the period of adjustments to continue to have a slight change favorable''mais there are signs that `` the amount of these adjustments are positive and the reduction of opportunity will be pursued in 2009,'' said Ward.

A report published last week by Moody's Investors Service, New York, said, `` the industry has raised its full reserve redundancies.''

Another major uncertainty is the state of financial markets, which `` will likely continue to be a concern for the industry,''as 2009 progresses, he said.

`` It is very difficult to predict what could go wrong with the general market, and if you like it or not, these companies are major investors in (company stock), by their very nature,''said Mr. . Newsome.

Mr Auden also said, the market for `` bounces a little, but it's still a little low in the first quarter, and we believe that investment performance is being weak.''

`` You always have losses through declining 09''et `` underwriting results are not likely to improve in, benefits, if an average or below average cat years, you see net improvement, but we do not expect a big improvement in profitability''for les'09, "said Auden.

The overall economy and the stimulus plan Obama administration might also influence the outcome of this year, observers say.

The problem `` economy''and `` stimulation superimposed on the many issues that the industry faces steadily from quarter to quarter,''said Mr. Ward. `` As the stimulation is used to boost infrastructure spending, which could have a more modest for the industry in terms of increased demand for commercial insurance.''

26 March 2009

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