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Few Natural Catastrophes Helped P/C Insurers' Combined Ratio

Source: A.M. Best

Posted on 23 Nov 2010

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Commercial insurer FM Global Group, which had the lowest combined ratio of the top 25 U.S. property/casualty writers in 2009, enjoyed a year with little catastrophe activity.

Johnston, R.I.-based FM Global, ranked 23 overall by net premiums written, had a combined ratio before policyholder dividends of 67.1 according to a recent statistical study by A.M. Best.

"It was a very low natural hazards year," said Jon Hall, executive vice president of FM Global. "There were not a lot of major earthquakes, floods, and hurricanes, but, when those events did happen, and likewise with fires and other things, our clients were better prepared."

Hall said FM Global, which has a current Best's Financial Strength Rating of A+ (Superior), tends to have good combined ratios on a consistent basis, with its three-year and five-year combined ratios around 80.

For 2010, the company's combined ratio is expected to be "more in line" with its three-year and five-year numbers because of natural hazard events, including earthquakes in Chile, New Zealand, and Haiti, and major flooding in Tennessee.

No. 10 overall on the list, USAA Group, which has a Best's Financial Strength Rating of A++ (Superior) and a combined ratio of 87.8 in 2009, enjoys one of the lowest expense ratios in the industry, said Manny Rios, senior vice president for P&C underwriting at USAA.

"That's one of the primary reasons that we had such a very strong 2009," Rios said. He also credited a mild hurricane season. He said for this year, USAA's combined ratio is shaping up to be "very similar" to 2009.

The top 25 U.S. P/C writers, ranked by net premiums written, had a stronger combined ratio compared with the industry as a whole in 2009, the study said. The top 25 writers had a combined ratio before policyholder dividends of 98.8, while the combined ratio for the total U.S. P/C industry was 100.6.

Companies in the top 25 with combined ratios before policyholder dividends above 100 included CNA Insurance Cos., at 108.9; American International Group Inc., at 110.1; State Farm Group, at 107.3; and Nationwide, at 104.3.

"We're able to still make a profit if investment income is greater than underwriting losses," State Farm spokesman Dick Luedke said, adding that State Farm had a pretax operating profit of $400 million last year. As a mutual company, Luedke said State Farm need not worry about the short-term interest of invest