Insurer Executives Rank Economy As Top Worry

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May 11, 2009

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Insurer executives rank economy as top worry; Munich Re survey reveals big change in main concerns

JUDY GREENWALD

Insurance industry executives' top worry is the economy, according to a Munich Reinsurance America Inc. survey released last week.

Eighty-five percent of the 40 respondents cited poor economic conditions as their No. 1 worry this year, up from 49% in last year's survey by the Princeton, N.J.-based reinsurer. Munich Re America has conducted the CEO Roundtable survey annually since 2003.

``That just shows how heightened that is on people's radar screen in that context,'' said Pina Albo, president at Munich America Reinsurance, the reinsurance division of Munich Reinsurance America Inc., of the 36 point jump in economic concern from last year. ``The economy is front and center on everybody's mind.''

Ranking a distant second as a critical issue was low interest rates and capital market returns, cited by 41%, while 23% cited restrictive state regulation.

Ms. Albo said it also is telling of what is on insurers' minds that survey participants cited the financial crisis as Congress' top priority, followed by general tort and medical malpractice reform.

Industry executives also are more pessimistic about their particular company's future, Ms. Albo said. Forty percent of this year's survey participants described their company's two-year financial outlook as poorer compared with 32% in last year's survey. Only 15% of insurance industry executives predicted a better financial outlook for their firms for 2009-2010 compared with 2008-2009.

As for rates, 55% said they believe the market is hardening.

``Despite the economy,'' there is still a tendency to believe the industry is not deteriorating, Ms. Albo said. Rates are hardening despite what's happening overall in the economy, she said.

But almost half—48%—said they expect hardening pricing to continue only through 2010 and 35% expect it to continue through 2011. Only 4% expect the hardening market to last only through this year.

Asked about the two factors contributing most to the hardening market, 59% said reduced capital and 36% each cited economic conditions and underwriting losses.

As for the two most important effects of the recession on their business, 58% cited reduced overall writings and 55% said their insurable client base has declined.

Eighty-two percent said they believe the recession will lead to an inflationary period. Of those, 67% anticipate inflation will have an annual rate of a 4% to 6%, 21% expect inflation of 7% to 10%, and 12% foresee inflation of 1% to 3%.

Sixty percent of participants ranked maintaining underwriting discipline and price adequacy as the most critical issue facing their company, down from 70% in last year's survey. Forty percent cited ``developing your strategy'' as the most critical issue and 38% cited ``managing your cost structure.''

On the competitive advantage front, 60% of survey participants said their underwriting capability, including risk selection and pricing, was their company's top competitive advantage. This was followed by claims processing and management, cited by 55%; and strategic focus, cited by 38%.

Ms. Albo said this year's survey is the first time strategic focus has reached the top three in competitive advantages. This is ``indicative of the market we're in, and companies saying we've got to hunker down and figure out how we're going to weather this storm,'' she said.

Chief executives' top-ranked area as needing improvement was policy processing, which 44% cited vs. 41% who ranked it No. 1 last year. Coming in second was marketing, cited by 38%, with agency and distribution management and planning tying for third place, with 26%.

Among other survey results, 69% of companies who identified themselves as acquirers said they anticipate the same level of merger and acquisition activity during 2009-2010, while 36% of nonacquirers felt this way. Fifty percent of acquirers said they anticipate more M&A activity, vs. 15% of nonacquirers.

Copies of the survey are available at Munich Re America's Web site at www.munichreamerica.com.

May 13, 2009