P/C Execs Look Ahead to Mitigation, Retention, Rates

Several destructive tropical storm systems and continued turmoil on Wall Street marked the fourth quarter of 2008. These factors drove up combined ratios and put a dent in policyholder surplus for the U.S. property/casualty industry. Meanwhile, insurers looked beyond the losses during conference calls to position themselves as financially strong companies and discuss their strategy to balance possible rate increases with retention efforts.

Here's what executives said during conference calls:

Economic Conditions:

James Gober, chairman, president and chief executive officer, Infinity Property and Casualty Corp.: General economic conditions continued to worsen in many of our urban zones, which certainly have dampened demand for new cars, which in turn lessens the demand for auto insurance. We continued to observe increases in unemployment and greater levels of consumer uncertainty in many of our major markets -- all of which combine to reduce demand for our products.

Glenn Renwick, president and CEO, Progressive Corp.: There's a lot of new business pressure that seem to be reported across the board; there's not necessarily a parallel reporting of great gains in retention. That would suggest that there is a possibility that there may be an increase in uninsured motorists.

Terry Cavanaugh, president and CEO, Erie Indemnity: We are all keenly aware of the economic challenges facing our country, our family and our businesses. The volatility in the credit, investment and real estate markets has taken its toll, and as of yet they don't appear to be stabilizing. Our fourth-quarter results bear that out.

Frequency/Severity

Gabriel Tirador, president and CEO, Mercury General: The competitive environment remain intense. The industry is experiencing a reduction in frequency but we believe the increase in severity more than offsets the reduction in frequency.

Cavanaugh: Clearly in an economy like this, people are reluctantly starting to do some things that they would normally not do in terms of changing maintenance pattern, etc. -- and there is a watch for that. We've not seen that in any sort of numbers yet to date in terms of either frequency or severity in our claims counts.

Risk Mitigation:

Thomas J. Wilson, president and CEO, Allstate: Despite the challenges of a significant number of catastrophes and tumultuous investment markets, our proactive approach to risk management enabled us to be highly liquid and well-capitalized. Our catastrophe losses on hurricanes Ike and Gustav would have been nearly twice as high without the risk mitigation efforts.

Financial Strength

Michael Tipsord, chief financial officer, State Farm: One should not attribute too much significance to short-term operating results without first considering the level of financial strength. This concept is as relevant to 2007 when State Farm achieved record levels of profit as it is to 2008 when we experienced significant losses. The positive results from 2003 through 2007 enabled State Farm to endure a record level decline in net worth during 2008.

A Better 2009?

Wilson: Our three goals for 2009 reflect our expectation that the economic and business climate will remain difficult. First, we will protect Allstate's financial strength. Secondly, we will need to increase customer loyalty to provide additional revenue growth. Lastly, we will continue to reinvent retirement protection for the consumer by rolling out new products and services.

Cavanaugh: For 2009, we will be taking rate where warranted versus giving up rate. The rate movement is expected to add $36 million to revenue in 2009. Of course, persistent economic conditions may have an adverse effect on revenue growth given the anticipated declines in exposure growth.

Gober: We believe disciplined companies will likely pursue rate adequacy in lieu of market share expansion over the next 12 to 24 months.

Renwick: The game is changing. I would say the softer market is definitely changing.

Tirador: We continue to observe more filings for rate increases than rate reductions, however we believe growth will be challenging over the next few quarters.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)