Property/Casualty (P/C) insurers weathered 2010’s economic storms better than most sectors of the U.S. economy, but limited premium growth, coupled with slower investment income returns, are likely to remain key challenges for P/C insurers in 2011, according to panelists offering a View from the Outside Looking In at the 15th annual Property/Casualty Insurance Joint Industry Forum, held at the Insurance Information Institute (I.I.I.) earlier this week.
“From a financial perspective, looking at the property/casualty insurance industry, it  was really the tale of two cities,” said Vincent J. Dowling, managing partner, Dowling & Partners. “On the one hand, you had the industry overall that didn’t grow its premium, which continues to have a single-digit operating return on equity. There’s too much supply, and demand was impacted negatively by the economy so the results were not terrific. But then if you look at the publicly traded companies, as a segment of it, they actually did pretty well,” he added.
Dr. David Sampson, president & CEO of the Property Casualty Insurers Association of America and the panel’s moderator, noted that 19 of the 22 insurance companies in the Standard & Poor’s (S&P) 500 outperformed the S&P 500 of 2010.
According to Leo Grepin, senior partner and P/C Insurance Practice Leader at McKinsey & Company, the P/C industry financial results in 2010 were not bad compared to 2009. “The industry managed to remain fairly stable, and to do so in light of extreme difficulties,” he said. “If you look at what was thrown at the industry in 2010, short of a major hurricane landing on U.S. soil, we pretty much got everything we could. We got micro-cat storms, we got healthcare reform, financial reform, we got softening markets, low interest rate environment and a slow economic recovery. And in light of this tough environment, we had an industry that, on balance, did pretty well.”
James Wrynn, New York State’s superintendent of insurance, cited Insurance Information Institute President Robert Hartwig’s observation at a previous presentation on P/C insurer financial performance in 2010, agreeing that “insurance was on the mend.”
“Premiums have started to go up after several quarters of decline, policyholder surplus has started to go up,” Wrynn stated. “But with that said, we still have relatively low interest rates, and we’re going to have them for the foreseeable future. And, as regulators, we want to be a little concerned that people don’t chase returns with the investments they make, or relax their underwriting standards to get into areas they really shouldn’t be getting into.”
To illustrate P/C insurer resilience since 2008, Wrynn pointed to a Geneva Association study that found that 592 banks, and only three insurance companies, had accessed the U.S. Treasury Department’s Troubled Asset Relief Program (TARP). Not one of the three insurers used the TARP monies to bolster their P/C operations, the superintendent noted.
“There’s hardly any sector of the economy that can boast a stronger performance through this really rough economic time than the insurance industry,” said Brian P. Sullivan, editor of Risk Information, Inc., publisher of Auto Insurance Report, and other industry publications, inviting the audience to compare P/C financial insurance industry results with those posted last year by retailers, banks, real estate companies, and the manufacturing sector. Sullivan also praised the progress P/C insurers have made in the field of information technology, which have allowed insurers to generate data and correct mistakes quickly in ways they couldn’t have done even five years ago.
“One of the reasons why the industry has been able to do as well as it has done in the last few years is because they’ve really taken advantage of not only the [information] technology but the modeling,” said Howard Kunreuther, co-director, Risk Management and Decision Processes Center, Wharton School, University of Pennsylvania, referring to P/C insurer use of risk-modeling data. Citing 1992’s Hurricane Andrew as a turning point in the industry’s history because of the severe damage it inflicted on Florida at the time, Kunreuther said that insurers learned from that experience because of the magnitude of the insured losses resulting from Andrew. “Today,” he added, “P/C insurers incorporate a mix of information technology and computerized risk-modeling to make decisions as to whether or not they can even be in certain areas.”
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 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, Reinsurance Association of America and The Institutes.