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Insurance Profits Mixed Across the Board, Analysis of Past Data Could Reveal Future Trends

Source: IIABA

Posted on 12 Nov 2010

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Allianz profit is down, Munich Re’s profit is up, Berkshire profit slipped and Bill Berkley of W.R. Berkley says he’s “optimistic” the market will begin to harden at the end of the quarter. It's difficult to know what direction the property-casualty market will go in, but looking to the past for lessons can help shed some light on the future.

A close scrutiny of industry figures for various groupings of p-c insurer filings on Types of Insurance (TOI) may help reveal in which direction the hardest and softest markets are moving.

The below graph assembled by A.M. Best examines the total written premiums for two groupings of insurance policies.
Leading the shrinking (“soft” pricing) and fasting growing (“hard market” prices) are workers’ compensation and multiperil crop insurance, respectively. Workers’ Compensation premiums have been on a steady decline since 2005 at an average decline of 9% per year. Multiple peril crop insurance, however, has been increasing at a meteoric rate: an average of +22% per annum. With total p-c industry premiums down an average of –1% and commercial lines down –2.4%, many main street agents are feeling the pinch. Agents concentrating on personal lines (up 1%), however, or concentrating on other specialties, may be feeling less stressed.

Broadening the spectrum and looking at other lines over the past five years, the charts below show that depending on the make-up of an agent’s book of business, top-line results could be very different. Generally though, an independent agent whose mix of business tends to be more than 55% commercial is feeling the reduction in prices of more distribution models, more focused on personal lines.

One bright spot that stands out is flood insurance. Unlike crop insurance or even farmowners coverages, there is hardly a place in the United States that has no flood exposure within a typical independent agent’s marketing territory. Many agents use flood insurance as an entry point to other lines with prospects if the incumbent has ignored the exposure.