Analysts Forecast Healthy Q3 Reports from Insurers promised the headline on Insurance Journal Oct.22. Reuters was reporting that third-quarter earnings reports from insurers would look a lot better than they did a year ago A recovering stock market and only minor catastrophe losses would mean profits—even with premiums continuing to decline and the economy far from recovered.
“We should see significantly improved results,” said Bob Hartwig, president of the Insurance Information Institute. “The improvement in investment environment and reduction in catastrophe losses are a welcome turn of events.”
Welcome, that is, compared to 2008. Remember Hurricanes Ike, Gustav and Dolly? Ike alone caused $12.5 billion in insured losses. Billions in stock market losses added to insurers’ woes.
The good news was that early third quarter reports have been as predicted.
Travelers Companies Inc., the No. 1 publicly-traded U.S. property/ casualty insurer, said its quarterly profit more than quadrupled. Travelers managed a $524 million underwriting gain for the quarter. In the year-earlier quarter, the company posted a $288 million loss thanks to Dolly, Ike and Gustav. Net investment income was more than 6 percent higher at $763 million. These factors helped offset a three percent decline in net written premiums.
The Chubb Corp. also fared well in the third quarter. Its net income was $596 million compared to $264 in the third quarter of 2008. Chubb’s third quarter combined ratio was 85.4 in 2009, compared to 98.1 in 2008. Catastrophe losses in the third quarter accounted for only 0.8 percentage points of Chubb’s combined ratio, compared to 13.6 points in the third quarter of 2008.
“The company is doing pretty damn well considering all we’ve been through,” Hexagon analyst David Havens, told Reuters. “It has maintained strong results, good liquidity and solid capitalization without taking much asset risk.”
So, based one these early returns, things were looking up for insurers. But while insurers are managing well in difficult economic times, they have not been able to raise premiums. The bad news is that this linger soft market is likely to stick around even longer.
A new Advisen Ltd. briefing said that the damaged economy will keep rates from rising while at the same time sales, payroll and other measures of exposure used to calculate premiums may fall further. The cumulative effect will be another year of lower premiums.
Average premiums have been falling steadily since 2004 in some lines of insurance. The average general liability premium is now at 2000 level, according to Advisen. The average workers’ compensation premium is close behind. Certain narrow market segments such as financial institution D&O have seen premiums rise, but most of the commercial insurance marketplace remains mired in the soft market. Rate levels in lines such as general liability and commercial directors and officers liability (D&O) are expected to erode further.
“We had expected to see rate levels begin to creep up in 2010, but the continuing impact of the recession means that meaningful rate increases are now unlikely until at least 2011,” said Dave Bradford, an Advisen executive vice president.
This may be “a boon for insurance buyers, but a painful and potentially damaging situation for some insurers and, especially, brokers,” he advised.
Is that a not-so-happy new year ahead?
Topics Trends Carriers Profit Loss
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