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I.I.I. Survey: Insurance Industry Leaders Believe Financial Crisis Easing, But Recovery in Some Areas Will Be Slower

Source: I.I.I.

Posted on 15 Jan 2010

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Leaders of the property/casualty insurance industry believe the worst of the financial crisis is over, according to a survey conducted by the Insurance Information Institute (I.I.I.) at its 14th annual Property/Casualty Insurance Joint Industry Forum, held here. Seventy-seven percent of executives in the property/casualty industry expect financial troubles to diminish in 2010.

Yet, looking at the industry’s profitability, a majority of industry leaders believe that profits will not improve in most property/casualty lines. Broken down by lines of insurance, only 51 percent of respondents believe there will be an improvement in personal auto; 37 percent expect an improvement in homeowners; 16 percent of respondents expect an improvement in workers compensation; and 23 percent of respondents expect an improvement in commercial lines.

In terms of inflation, 71 percent of executives believe it will accelerate in 2010. Looking at premium growth, 51 percent of respondents believe that it will remain flat; 36 percent believe it will be negative; and 14 percent believe it will be positive.

As compared with 2009, 79 percent of respondents believe the combined ratio will be higher in 2010. The combined ratio is a percentage of each premium dollar a property/casualty insurer spends on claims and expenses. The combined ratio was 100.7* in the first nine-months of 2009. A combined ratio over 100 means that claims payments plus expenses exceeded insurance premiums.

“Looking forward to 2010, the economic environment will improve, but only gradually, and we will have difficulty coping with some severe problems related to the ‘Great Recession,’” said Dr. Steven N. Weisbart, senior vice president and chief economist with the I.I.I. “For example, long-term unemployment—people unemployed for 27 weeks or longer—grew to over 6.1 million as of November 2009, up from about 1.3 million at the start of the recession. Research shows that, when these people finally get new jobs, 40 percent will accept lower pay than from their prior job. This affects consumer buying power in general and the workers compensation exposure base in particular,” he added.

“Similarly, business bankruptcies have soared, and business formations slumped, so that the demand for commercial insurance in 2010 will rise from a smaller base than would otherwise have been the case,” Weisbart noted.

“Insurers invest mainly in intermediate-term and long-term bonds, and in prior years when interest rates were higher investment gains could overcome underwriting losses,” Weisbart explained. “But interest rates are likely to stay low for 2010 at least, so that investment gains are again (as in 2009) not likely to provide a large enough source of funds by themselves to generate enterprise returns that meet or exceed a firm’s cost of equity capital.”

In the area of torts, 72 percent of respondents believe that tort trends will deteriorate in 2010; 25 percent believe they will stay the same; and only 3 percent believe they will improve.

On the investment side, 28 percent of industry leaders expect another down year in the equity markets.

Looking at consolidation, 72 percent expect an increase among insurers and reinsurers.

Industry leaders were asked whether comprehensive financial services reform would be approved by Congress and signed into law by President Obama in 2010. Sixty-three percent believed reform would happen. But 50 percent believed such legislation would be harmful and 44 percent believed it would be neutral.

For the poll questions and full results, go to 2010 Property/Casualty Insurance Joint Industry Forum Questionnaire.

*Includes mortgage and financial guaranty insurers. Excluding these insurers, the combined ratio was 99.3.

About the Forum

The Property/Casualty Insurance Joint Industry Forum was created to provide leaders from the widest spectrum of the industry with an opportunity to meet with each other in discussion of topics of general interest. Participants included nearly 250 representatives from property and casualty insurance and reinsurance companies and organizations. Of these, roughly 40 percent responded to the survey.

The sponsoring organizations of the Forum represent a wide spectrum of insurance interests and audiences. They include: ACORD, American Institute for Chartered Property Casualty Underwriters, American Insurance Association, the Association of Bermuda Insurers and Reinsurers, The Geneva Association, Institute for Business & Home Safety, Insurance Information Institute, Insurance Institute for Highway Safety, International Insurance Society, ISO, National Association of Mutual Insurance Companies, National Council on Compensation Insurance, National Insurance Crime Bureau, Property Casualty Insurers Association of America, Property Loss Research Bureau and Reinsurance Association of America.