Business Built Around “Liability Risk”
Remains Vulnerable to Natural Disasters
NEW YORK—The U.S. property/ casualty (P/C) insurance industry performed remarkably well between 2007 and 2009, three of the most challenging years for the economy in decades, a group of industry experts observed at the 14th annual Property/Casualty Insurance Joint Industry Forum, held in New York City on Jan. 14.
dating back to 2007, the group agreed, as well as the threat of natural catastrophes, which could cause tens of billions of dollars in insured losses.
well as some reserve releases, were seen as the key reasons P/C insurers’ net income after taxes (profit) totaled $16.2 billion during the first nine months of 2009, nearly quadruple the $4.4 billion earned in the year-earlier period. Moreover, the $16.2 billion profit figure was earned entirely in the second and third quarters of 2009, more than offsetting the $1.3 billion loss P/C insurers recorded during the first quarter of 2009, they said, citing ISO/PCI’s third quarter 2009 report on P/C industry financial conditions.
Fell on Their Assets Businesses with asset risk exposure, such as banks and brokerages, fared much worse during the recent economic downturn, according to panelists on the View From the Outside Looking In. P/C insurers do have reason to be concerned about the multi-year decline in net premiums written
“If you look at the performance of the property and casualty industry versus other financial sectors, it has been a stellar performance,” said Joseph Guastella, partner, Insurance Industry, Strategy and Operations, Delo-itte, something he attributed to the effective risk management practices and prudent supervisory oversight of insurers.
“One of the great untold stories of the last year is how well the insurance sector in general has done,” said Professor Scott Harrington, University of Pennsylvania’s Wharton School. “Even the life companies, given what happened in residential mortgage-backed securities and asset markets, I think the performance of the overall sector has been truly remarkable.”
Profit Amid the Zephyrs The group pointed out that the relative calm of the 2009 hurricane season, as
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Asset v. Liability Risks “The business model of the property/ casualty industry is not as much about asset risk as the other financial sectors are; it’s about liability risk,” said Therese Vaughan, chief executive officer, National Association of Insurance Commissioners (NAIC).
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Vaughan, a former Iowa insurance commissioner, said, however, that identifying insurers who may face financial trouble remains a challenge, even though regulators track constantly a company’s loss reserves and actuarial opinions. On-site regulatory exams are the only sure way to get a definitive handle on an insurance company’s finances, she added, although agents who are on the ground are often the best source of real-time information on an insurer’s activities.
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Not All Fun & Games The news is not all good for P/C insurers, noted the panel’s moderator, Peter Miller, president, American Institute for CPCU, who pointed out that cumulative net premiums written were down more than four percent in 2009, the third consecutive year of decline.
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“The property/casualty insurance industry is not going to see positive
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