III: Insurance Industry Members Foresee “Road to Recovery”

Seventy-five percent of U.S. property and casualty insurers expect the industry to see increased profits in 2012, despite nearly one-third predicting that premium growth will remain flat and less than 20 percent foreseeing a rise in interest rates, according to a new survey from the Insurance Information Institute (III) of about 100 insurance company representatives.

Sixty-three percent of respondents said they expect increased profitability in private vehicle insurance, and 67 percent predicted the same for homeowner coverage. Seventy-two percent expected an improvement in commercial lines.

The poll, conducted at a recent III industry forum in New York, found that 72 percent of industry executives surveyed believe the industry is “on the road to recovery,” after natural disasters and other setbacks inflicted deep losses in 2010.

The institute’s senior vice president and economist, Steven Weisbart, noted that the U.S. economy is expected to grow at an annual rate of just over 2 percent this year, according to a majority of economic forecasters.

“In that scenario, the demand for property/casualty insurance will increase modestly, both in terms of personal and commercial coverages,” Weisbart said in a news release. “The industry is well capitalized to provide this additional coverage and to pay claims under it without difficulty.”

2011 Left Much Room for Improvement

The apparent optimism follows dismal reports on last year’s performance, which saw a long list of top insurers reporting net losses.

According to a report released in late December by ISO and the Property Casualty Insurers Association of America (PCI), U.S. insurers saw net, after-tax income dip to a combined $8 billion during the first nine months of 2011, a 70 percent reduction compared to the same period the previous year.

The report blamed the poor results mainly on large net losses and loss adjustment expenses (LLAE) due to tropical storms, tornadoes and other catastrophes that obligated insurers to settle claims on everything from homeowner coverage in Texas to Connecticut auto insurance policies. Analysts said severe weather events caused more than $33.2 billion in LLAE from January through September, more than triple the toll suffered in the same time frame in 2010.

Reps Expect Increases in Premium Growth, Stagnation in Investment Rates

More than two-thirds of those who took part in the poll believe premium growth will increase, with 31 percent predicting it will stay flat and 2 percent expecting it to decrease.

More than half said they think policyholder surplus—the funds insurers have on hand, above and beyond what is required to pay benefits and meet other obligations—will increase ,while 35 percent expected no change and 9 percent saw a decrease coming.

The forecasts were brighter for investments, with three-quarters of industry leaders predicting that equity markets will have an up year. III officials noted that those investments make up only 15 to 20 percent of invested assets, however, with 70 percent of assets in bonds.

According to a report released last month by a nationwide coalition of consumer advocacy groups, insurance companies make most of their profits by investing customer payments, rather than on the premiums themselves, which are often outweighed by losses.

Seventy-eight percent of respondents to the III survey said they believe investment rates would remain unchanged this year, with another 19 percent expecting a rise and 4 percent foreseeing a fall.

The prices for policies “will be determined, as they should be, by state- and local-level market conditions, recognizing the impact of inflation on claims and the effect of lower investment income than the industry has earned in prior years,” Weisbart said.

About John Pirro
John Pirro is a licensed fire and casualty insurance agent specializing in various aspects of the auto insurance industry. He worked in the auto body repair industry before taking a reporting position at Online Auto Insurance News.

No comments yet.

Comment on this article