A new report by Fitch Ratings reveals that expense management has taken on greater importance for insurance in the U.S. property/casualty industry.
Operating expenses are a typically overlooked area in the analysis of property/casualty insurance companies, largely because incurred losses are a significantly larger and more volatile cost factor, and changes in overall profit measures, such as return on surplus, are influenced more by changes in the loss ratio versus the expense ratio.
However, expense management has recently taken on greater importance for insurers as economic conditions and shrinking premium bases has fostered a steady increase in the underwriting expense ratio to 28% for full-year 2009, compared with a hard market low of 25% in 2003.
The report examines changes in industry underwriting expenses for property/casualty insurers over time and expense differences by business segment. The analysis also compares expense ratio differences for major industry participants. In an effort to consider expense efficiency across insurers, the report compares expense levels of individual insurers with the industry on a premium mix-adjusted basis.
Additional information is available at www.fitchratings.com.