Category Archives: Industry results/outlook

P/C insurers posted $33.5B profit in ’12

The ISO/PCI results are out:

  • Net income after taxes grew to $33.5 billion in 2012 from $19.5 billion in 2011.
  • Return on average policyholders’ surplus climbed to 5.9 percent from 3.5 percent. That’s still below the industry’s long-term average.
  • The combined ratio improved to 103.2 percent for 2012 from 108.1 percent for 2011. (Just like I said.)  Sandy forced the industry to post a 110.4 in Q4, up from 103.3 in 2011.
  • Policyholders’ surplus grew $33.1 billion to a record $586.9 billion at year-end 2012 from $553.8 billion at year-end 2011 as a result of insurers’ $33.5 billion in net income after taxes.

Prior Line Development: It’s all A&E

Pawing through 2012 financials, I noticed that the development on claims older than 10 years grew by $2.3B. Interesting given the total development on prior was $12.3B favorable. I guessed asbestos and environmental reserves drove the old years, so I put together this chart:

prior vs A&E 2012The chart is a little busy. The blue columns are total development on claims 10 years and older, by calendar year. The red dots are asbestos losses. The green line signifies all non-A&E losses on claims 10 years and older.

(From here on, I’m calling development on claims 10 years and older prior line development, because that’s the line it is taken from in Schedule P, Part 2. Please don’t confuse prior line development with prior year development, the latter being development on all prior year claims, not just the oldest.)

All amounts are billions of dollars. I forgot to label the y-axis – sorry.

First, notice to the far right: For the past two years, prior line development has been close to zero, once you exclude A&E claims.  (I’m assuming all A&E claims are more than 10 years old. ISO’s GL policy excluded A&E around 1986, so this is a pretty safe assumption for every year in the table, except maybe the earliest one or two.)

Next, notice that in every year except 2001, the red dots are almost always above the green line. That means almost every year, A&E losses are more than half all prior-line losses. Toting up all years, A&E is 78% of the prior line total.

A&E emergence has slowed in recent years, averaging $2.4B across the past seven years back to ’96, vs. $3.9B for the seven years before that. Even with that, A&E drags on the industry combined ratio by about six-tenths of a percentage point.

2012 Combined Ratio: 103.2

Haven’t seen the 2012 C.R. published yet, but maybe I missed it.

So here’s a chart I put together:

2012 C.R.This chart includes all the insurers that SNL Financial has captured through April 13. That means it includes mortgage insurers, which adds a couple of points in recent years. This year, eyeballing Q3 data, it looks like mortgage insurers add a couple of tenths to the industry total.

These numbers also include policyholder dividends, worth about 0.5 percentage points last year.

The AY C.R. was 105.9%, implying favorable development on prior of $12.2B, of which $3.4B occurred in Q4.

A.M. Best: 107.5 combined for 2011

Shorter Best: Cats made it a lackluster year:

  • $44B in cats (10.1 points of CR), more than double the $20B (4.6 points) posted in 2010. Note that even given last year’s fairly normal cat levels, the CR would still have exceeded 100.
  • $33.9B underwriting loss is third worst ever, behind 2001 ($56.4B) and 2002 ($34.3B).
  • In better news, NWP rose 3.5% to $442B.
  • Surplus fell 1.4%, to $562.7B.

Summing up:

Looking ahead, while pricing discipline seems to be taking hold, A.M. Best believes a traditional “hard” market is likely at least a year or two away. While the industry’s operating performance is expected to improve in 2012, insurers still face a challenging environment, with relatively weak underwriting results and lackluster investment returns expected to influence operating results over the next year.

The press release provides a link to a free copy of the 24-page report.


2012 Projections Roundup

With the new year comes a lot of analysts telling us what will happen over the next 12 months. I’ve created a page to round them up. If anyone sees a report I missed, let me know in comments.


Actuaries – the eternal optimists

Update: An earlier version suggested that every accident year was inadequate. Reader GB points out that the article I cite almost certainly refers to the adequacy of the loss reserve on the balance sheet each year end. My misunderstanding also led me to wonder why the article dwelt on asbestos and environmental reserves, but with GB’s insight, the reasons for that become clearer now.

I’ve edited throughout to correct and clarify. Sorry.


Frustrated at my lack of posting lately, but work has taken one of those turns. I wanted to devote more time to this fine Contingencies article than I will be able to.

Every year the p/c industry estimates its loss reserves on the Annual Statement. And for every year since 1994, that estimate has proved too low, according to Milliman’s Susan Forray. (She doesn’t have data before 1994.) This is surprising, since in recent years, calendar year development – what we usually read about in the trade press – has been favorable. But CY development is a mix of movements on all previous accident years. Favorable movements on recent accident years have more than offset unfavorable movements in older years.

The chart tells the story. It uses accident year data to re-estimate what the industry should have posted each year. (The color coding distinguishes the movement in the first, second and third development year, etc.) The years for which we have complete development (10 years, cause that’s what you can get from the annual statement) end with 2001.

Only subsequent years show favorable development overall, and, well, the jury is still out on those. Notice that 1995, 1996 and 1997 started out favorably, too, and those didn’t end so well.

This contradicts the conventional wisdom, which tells us that the industry overestimates some years and underestimates others. The CW is true for calendar years.

Forray points to two causes. One is medical inflation and its impact on workers comp. (<Wonky> I’d be curious if the runoff of WC tabular discounts affect this, but I don’t have time to check. </Wonky>) The other is development on asbestos and environmental reserves, which have been the bane of actuaries for more than two decades now.

Harkening back to the headline, though: Reserve estimates are the most public work that actuaries undertake. (Reserves are ultimately an executive management decision, but actuaries play a big role.) I think it’s interesting that actuaries – whom most execs will paint as seeing the glass half-empty – appear to have consistently underestimated losses.

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Preliminary cat reports – an update

Montpelier pegs Q3 cat losses at $80M $70M. Details on the web page at the top left corner of the blog.

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Preliminary cat estimates start trickling in

Over the past few days, insurers have started reporting their preliminary Q3 cat losses – softening the blow for earnings season, which starts around the end of the month. So far a handful of companies (Alterra, Endurance, Cincinnati and a few others) have reported almost $650M in cat losses. This isn’t too surprising, with Hurricane Irene checking in around $3B industrywide plus the Texas wildfires.

I’ll catalog the ones I see at a new page, Q3 2011 preliminary cat reports, which you’ll be able to find at the upper left corner of the home page. On the page, the links take you to a news story or press release with (typically few) details.


Aon: Reinsurer capital grew a sliver in Q2, down for the year

Highlights from the first half study of the the 28 large insurers that make up the Aon Benfield Aggregate:

  • Global reinsurer capital totaled US$445B at June 30. That’s 5% less than at year-end but 1% higher than at Q1.That number includes shareholder funds and non-traditional forms of capital. Shareholders funds fell 1.7% in the first half, to US$242B.
  • First-half net income was US$1.2B, with Q2’s gain of $5.4B offsetting Q1 losses of $4.2B.
  • The big drain on capital was $9.6B of dividends and share buybacks. The chart nicely shows how they drove the fall in shareholder funds, with $7.1B in dividends and $2.5B in buybacks. Pretty good evidence of an overcapitalized industry.
  • GWP rose to $74.4B, 10.5% more than the year-ago period. This was partly growth, but acquisitions and reinstatement premiums played roles, too.
  • CR rose to 120.6% from 99.7% a year ago, mainly because cat losses rose to $18.2B from $5.4B a year ago.
  • Investment returns fell by 12%, to $18.5B, thanks to low interest rates. Capital gains, both realized and unrealized, were meager.
  • First half profits were $0.8B, 95% lower than a year earlier.
  • Despite the lackluster results, financial strength ratings were mainly unchanged.

Full report here.

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Q2 reserve releases: Not much left

Fitch estimates that P/C reserves were redundant by $6B to $16B at year-end, according to this P/C 360 report. So far this year, insurers have pushed prior-year reserves down $7.4B, which indicates the well must be about dry.

The $7.4B takedown comes via Quarterly Statement data released last week (gathered by SNL). The table breaks down the change by company focus, with a negative number being a takedown of reserves.

Looking at individual lines, Fitch says, “The biggest change in reserve adequacy in recent years has taken place in the workers’ compensation lines, which currently looks deficient. Other segments that are estimated to be understated in aggregate are product liability–occurrence, and to a lesser degree, commercial multiperil.”

Medical malpractice–claims made and occurrence, as well as “other liability–occurrence” were shown to be the most redundant lines, according to Fitch. Private passenger auto liability was listed as slightly redundant, while homeowners’ and commercial auto liability were adequate.

Workers comp appears deficient, according to Fitch. Product liability-occurrence reserves and commercial multiperil might be weak as well.

A recent Keefe, Bruyette and Woods study indicated recent accident years (2008-2010) were deficient $6.4B, but Fitch thinks recent-year reserves are about where they should be.

Update: SNL did its own analysis (sub. req.) of prior-year development:

  • $7.4B first half reserve release is down from $9.1B in first half 2010.
  • Q2 favorable development of $2.8B is 16% less than the $3.3B favorable in Q2 2010.
  • Mortgage insurers have an outsize impact on development. That’s best seen from the table above, with financial lines unfavorable $1.6B while the rest of the industry is favorable around $9B. That $9B is less than the $10.5B favorable that non-financial writers posted in first half 2010.