Despite Price Drops, P-C Sector Looks Strong To Conning

The property-casualty insurance industry is in strong financial condition, and it should be able to withstand the current drop in prices and a forecast decline in premium growth, according to a research firm report.

Hartford-based Conning Research, in its latest “Property-Casualty Industry Forecast,” said the pricing outlook for the next three years, ­through 2010, ­ is generally soft for the industry as a whole.

Conning’s report projects a decline in premiums of 0.5 percent for 2008, compared with growth of 0.2 percent for 2007. Premium growth will be 2 percent in 2009, and 3.4 percent in 2010, the firm forecast.

“We project continued deterioration in underwriting margins and implied return on equity,” said Conning analyst Clint Harris.

However, Stephan Christiansen, Conning’s director of research, said that looking beyond 2008, “our forecast contains a somewhat more optimistic view of 2009 and 2010 because we anticipate a modest rebound in the economy and also a moderating competitive environment.

“We project a return to net premium rate increases beginning in some lines as early as 2009. In fact, we are already beginning to observe some insurers taking corrective actions in their markets because of poor results,” he concluded in a statement.

Conning said the largest year-over-year increase in combined ratio is forecast for 2008 at 100.5--up five points from 95.5 last year.

While this reflects a return to normal catastrophe losses, much of this deterioration is self-inflicted, as premium prices and premium rate adequacy continue to fall, Conning said.

The firm predicted a 7.7 percent return on equity for the industry this year and 7.3 percent for 2009.

According to the report, researchers are somewhat optimistic about industry results for 2009 and 2010, projecting “premium rate increases beginning in some lines.” Specifically mentioned is personal auto. Medical malpractice was foreseen as continuing to experience “record profitability.”

Conning said its study--“Property-Casualty Forecast & Analysis”--identifies the key drivers of the industry and forecasts industry growth and performance for 2007-2010.

For more information, see http://www.conningresearch.com/.

Employers Feel Recession Will Not Impact Comp Insurance Claims

Senior level financial executives in a survey said the majority of employers believe their workers’ compensation and general liability claims will be unaffected by a looming recession.

The findings were the result of a poll of 255 financial executives conducted by Guideline, a national research firm, and sponsored by Wausau, Wis.-based Wausau Insurance for its fourth annual Multiline Productivity Poll.

The survey found that 62 percent of the executives feel a recession would create no significant change in workers’ comp claims and 64 percent believe their general liability claims would not change significantly.

Twenty-three percent said they believe workers’ comp claims would increase because of the recession, and 21 percent believe their general liability would rise.

On both questions, 6 percent said insurance claims would decrease and 9 percent said they did not know.

“At a time when media reports raise recession concerns, we believe most employers are maintaining a level-headed risk management outlook,” Susan Doyle, president and chief operating officer for Wausau Insurance, in a statement.

On the workers’ comp side, 71 percent of those surveyed employing 101-500 employees believe there would be no significant change in claims. However, the picture was a little different for larger companies with 5,001-plus employees where 37 percent said they would see no significant change, but 35 percent said they believe their claims would increase.

On the general liability side, broken down by number of employees, the vast majority of respondents—more than 68 percent—believe there would be no significant change in claims.

However, for companies with more than 5,001 employees, the respondents were evenly split at 37 percent saying either there would be no change or an increase in claims.

When asked what is the most important factor when weighing quotes for their property-casualty insurance, 48 percent said it was the total cost of risk while 52 percent said it was the direct cost. In 2007, the results were reversed with 52 percent saying total cost of risk was more important and 48 putting the emphasis on direct cost.

When it comes to being counseled by their agent or broker, 66 percent of the respondents said they are told to consider the total cost of risk in addition to the direct cost of the premium and deductibles for the p-c insurance. This is an increase from last year’s 61 percent.

On the issue of claims expense, 65 percent of the respondents said they save at least $2 or more in lost productivity expenses for every $1 saved by reducing claim expenses for workers compensation.

The findings were generally the same for general liability claims, commercial auto and commercial property where more than 50 percent of the respondents said a $1 reduction in claim expense resulted in savings of at least $2 or more. The findings were generally consistent with the previous two surveys.

The survey also indicates that in 2008 less companies were integrating multiple lines of insurance with one carrier than in 2007—60 percent in 2008 as opposed to 80 percent in 2007. However, most (75 percent) said they achieved significant productivity savings by integrating multiple lines, at least two lines.

Twenty-seven percent of respondents said workers’ comp paired with general liability and 33 percent of respondents said general liability paired with property insurance produced the most productivity savings. Workers’ comp and property insurance came in third with 21 percent of respondents saying the pairing produced the most savings.

Eighty percent of those surveyed said they would rather have one multiline underwriting team as opposed to 20 percent who said they preferred separate teams underwriting each line of business.

House Okays Funds For Building Code Enforcement

The House passed legislation yesterday creating a national program that provides awards to local governments for building code administration and enforcement.

The legislation introduced by Rep. Dennis Moore, D-Kan., the Community Building Code Administration Grant Act (H.R. 4461), is designed to provide funding for local and state authorities to enact and enforce strong building codes. It was approved by voice vote.

The bill creates a five-year program that authorizes $100 million to go to local governments over that period.

The legislation caps awards at $1 million per recipient, requires recipient communities to match a portion of funds received, and outlines eligible uses of funds and selection criteria, with preference offered to governments in financial distress.

It also allows local and state authority to maintain and enforce their building codes.

Jimi Grande, vice president for federal and political affairs at the National Association of Mutual Insurance Companies, said the Building Codes Coalition, a group of insurance trade groups which NAMIC helped form, had worked to get the bill through the House.

He added, “Stronger building codes are vital in the effort to protect lives, homes and businesses from the devastating effects of natural disasters.”

Mr. Grande said the money provided through the legislation can also lead to overall savings for American taxpayers.

“Research by the National Institute of Building Sciences indicates that every $1 spent on mitigation at the federal level saves taxpayers $4 in disaster assistance,” he said.

Marc Racicot, president of the American Insurance Association, added that “the evidence is clear and overwhelming that our nation can greatly reduce the disruption of lives and economic losses with the adoption and enforcement of building codes.”

House Panel Okays 3 Insurance Measures

A House Financial Services Subcommittee approved three bills yesterday aimed at improving the insurance regulatory system and increasing the availability of coverage through risk retention groups.

Members of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises approved the measures by a voice vote. Those passed included the Insurance Information Act, or HR 5840; the National Association of Registered Agents and Brokers Reform Act, also known as HR 5611; and the Increasing Insurance Coverage Options for Consumers Act, or HR 5792.

The OII bill was introduced by the subcommittee’s chairman, Rep. Paul Kanjorski, D-Penn., who noted that it “promoted an idea that I have long held, that the federal government should have an in-house expert on insurance issues.”

Rep. Kanjorski offered an amendment making changes designed to assuage the concerns voiced by some critics of the bill. The amendment created a specific role for the National Conference of Insurance Legislators on the OII’s advisory board, and language giving the OII authority to preempt state laws was clarified to apply, he said, under “very narrow circumstances and with a very detailed procedure.”

Rep. Chris Shays, R-Conn., said the bill struck a “careful balance” between those who believe in federal oversight and those who would keep insurance regulated by the states.

In touching on the issues of state versus federal regulation, the bill drew a mixed reaction from industry groups.

Marc Racicot, president of the American Insurance Association, said the panel’s approval “is a recognition that an immediate need exists for federal expertise regarding the important national and international insurance trends in today’s rapidly changing and globalized marketplace.”

However, David Sampson, president of the Property Casualty Insurers Association of America (PCI), expressed concern regarding the preemption authority the OII would have, although he noted that the PCI has not taken a formal position for or against the bill.

“We advocate that any preemption of state laws, if necessary, be accomplished by legislative action and not simply left to be developed through an administrative procedure,” Mr. Sampson said.

“The legislative process is the most appropriate way of answering public policy questions, such as how to harmonize this proposal with existing laws like the McCarran-Ferguson Act,” he added.

The second bill approved, which revived the NARAB concept for ensuring reciprocal licensing of agents originally conceived of in the Gramm-Leach-Bliley act nearly a decade ago, was introduced by Rep. David Scott, D-Ga., and Geoff Davis, R-Ky., and both noted that it had drawn significant support from both sides of the aisle, as well as backing from state insurance regulators and agents’ groups.

Rep. Scott noted that the bill had been changed to give state regulators a majority, albeit a slim one, on the board tasked with overseeing NARAB, and also noted that the bill was clarified to ensure that state revenues from licensing fees would not be reduced under the bill.

Rep. Davis said that his experience showed the need for the legislation when as a small-business owner he tried to find a single policy covering several employees across multiple states. “Nearly ten years after Gramm-Leach-Bliley, we’re still in need of progress on this issue,” he said.

Rep. Jackie Speier, D-Calif., voiced some concern regarding the bill, noting that nonresident producers “are not going to be prepared” for her state’s system of consumer protection without being required to study it and be tested beforehand.

Agents groups have supported the measure, and Rep. Kanjorski praised their coming together with regulators to help craft the legislation.

Robert Rusbuldt, president and chief executive officer of the Independent Insurance Agents and Brokers of America, said the NARAB bill was an example of how “targeted reforms” could effectively resolve problems facing the insurance marketplace.

“The most serious regulatory challenges facing our members are the redundant, costly and contradictory requirements that arise when they seek licenses on a multistate basis,” he said. “The NARAB Reform Act solves these problems through targeted reform and modernization of nonresident agent and broker licensing without affecting resident licensing.”

The Council of Insurance Agents and Brokers offered its support for the NARAB bill in a letter to committee members signed by the CIAB leadership.

“When the original NARAB was enacted as a part of Gramm-Leach-Bliley in 2000, the first important steps were implemented to achieve some semblance of reciprocity among varying states,” the CIAB said in its letter.

“But the pace of interstate transactions has far outstripped the pace of reform, and we now need the full implementation of an interstate agent/broker licensing clearinghouse with high standards of professionalism for producers, which will better serve the needs of consumers and ultimately lower the costs of insurance.”

In addition, the panel gave its approval to H.R. 5792, which would expand the Liability Risk Retention Act to allow risk retention groups to offer commercial property-casualty coverage. RRGs are currently limited to providing liability coverage.

The bill, according to Rep. Dennis Moore., D-Kan., who introduced it, would have a “modest but important effect on increasing capacity” under the Risk Retention Act.

In addition, a new provision was added that would require the Government Accountability Office (GAO) to examine whether there is unlawful interference in the operation of RRGs by regulators from states outside the state where they are based.

Dick Goff, president of the Self-Insurance Institute of America Inc., praised the addition, saying that the “single regulator” structure envisioned under the original legislation has been compromised by the states.

“These actions have obviously had a negative impact within the RRG marketplace,” he said.

However, the National Association of Mutual Insurance Companies expressed some concerns that the bill could allow for too great an expansion for RRGs, creating what it sees as an unfair competitive environment.

“Admitted carriers are subject to the myriad of state regulations,” said Jimi Grande, NAMIC’s vice president of government and political affairs. “Allowing RRGs, which enjoy a lesser degree of regulation, to provide additional coverages that are readily available in the marketplace would provide a competitive advantage over traditional, conventionally formed insurers.”

In speaking on the bill, Rep. Moore said that it was intended only to allow RRGs to offer coverage for commercial properties, and that the language used in the legislation had been clarified to indicate as much.

U.S. Natural Catastrophe Events Approaching Record Year

This year may prove to be a record-setting one in terms of insurance losses as natural catastrophe events hit numbers not seen in decades, but that would not necessarily translate into a market turning event, insurance representatives said.

During a Web seminar sponsored by Munich Re today, executives from the insurer and Robert P. Hartwig, president and chief economist for the New York-based Insurance Information Institute, discussed the insurance losses suffered from natural catastrophes so far this year and their implications for the industry.

Carl Hedde, head of risk accumulation for Munich Re America, said that using figures gathered by the insurer, within the United States the number of incidents and insurance losses the industry is seeing is reaching record proportions.

For the first half of this year, the number of incidents is exceeding all of the past number of events going back to 1980 with 109 natural disasters so far this year. Last year was the next closest with more than 90 events.

In terms of insured losses, Mr. Hedde pointed out that thunderstorm losses stand at $8.1 billion for the first half of this year, exceeding all previous years going back to 1980.

He warned that while wildfire losses at this point stand at an estimated $30 million, a relatively low figure compared to past years, most of the losses from wildfires occur during the third and fourth quarters.

Peter Hoppe, head of GeoRisk Research and Corporate Climate Center for Munich Re, noted that worldwide “we are on the upper edge of frequency in the past 29 years.”

While the United States and Europe have seen record-setting natural catastrophe events, Asia has experienced the largest devastating natural events from storms and earthquakes.

Mr. Hoppe said winter storms in China during January and February produced the highest insured losses so far this year at $1.6 billion, followed by winter storm Emma in Europe producing $1.5 billion in losses and February’s severe storms and tornados in the United States rounding out the top three at $900 million.

Global climate change is contributing to this increase in extreme atmospheric events, he said, and human activity is adding to these natural perils.

Mr. Hartwig noted that while insured losses are well beyond the past two years, the industry is still a long way away from the losses it experienced in 2005 from Hurricanes Katrina and Rita.

He said whatever losses lie ahead, the industry remains in a very good financial position to withstand severe losses with $522 billion in policyholder surplus.

A worrisome development is the increase in insured value along the Atlantic and Gulf Coasts that has risen from $7.2 trillion in 2004 to $8.9 trillion last year.

“These are very significant sums,” Mr. Hartwig noted.

When asked about whether the current loss trends could halt the decline in insurance rates, Mr. Hartwig said “it is too soon to speculate.” He indicated that no matter how significant the weather-related catastrophe losses could be, it probably would not result in a marketwide turn from soft pricing.