Allstate announced $1.08B in cat losses, pre-tax in Q3, $500M from Hurricane Irene.
Other announcements are on my page at the link.
Today’s rate roundup:
The Council of Insurance Agents and Brokers shows a 0.9% rate increase for Q3, with workers’ comp up 4.1%, property up 3% and GL up 0.2%. Business Insurance quotes, and laments:
“We really didn’t see any significant trend last quarter, though rates appear to be edging towards positive territory,” CIAB President Ken A. Crerar said in a statement accompanying the study. “There’s still plenty of capacity in the market to dampen prices.”
But if rates are flat, don’t tell Travelers shareholders. TRV’s stock price jumped more than $3 a share during the day Wednesday. Investors were apparently stoked about the investor presentation, which appeared to show rates increasing. Quoth Bloomberg News:
Travelers Cos. posted the largest gain in the Dow Jones Industrial Average after the insurer reported an increase in third-quarter policy sales and said it was raising rates for clients.
The insurer advanced $2.86, or 5.6 percent, to $54.32 at 10:05 a.m. in New York Stock Exchange composite trading, the biggest jump since August.
Chief Executive Officer Jay Fishman is charging more for coverage as the insurer copes with higher catastrophe costs and near record-low interest rates crimp investment income. Net income slipped to $333 million, or 79 cents a share, from $1.01 billion, or $2.11, a year earlier, the New York-based insurer said today in a statement.
“It is all about rate,” Fishman said on a conference call with analysts today.
Slides like this one (available at this quarter’s Link-o-rama) got the party started:
Rates are rising! (To be fair though, Travelers CEO Jay Fishman doesn’t push that line as hard as Bloomberg makes it sound.)
Meanwhile, the cynicism oozes from Sector & Sovereign Research’s blog. Todd Bault plugged Travelers increases on renewal business into some fairly straightforward formulas and concluded that new business prices must be down on the order of 20%. (Plugging and chugging the math gets him -40%, but he backs away from that.)
After the last soft market, the C-suite instituted rigorous monitors on renewal pricing, and most indices show that metric holding firm.
But in the same way that mice hide where you don’t look (of course they do! otherwise they aren’t hiding!), it’s likely that the current soft market is playing out in new business.
It’s harder to monitor rate on new business. (You don’t know how much the insured paid last year – it was with another company.) And Todd’s 20% isn’t far-fetched. The Gecko, the bubbly checkout girl and the baritone with good hands each promises to undercut competitors 15% to win new business. And that’s in personal lines, where rates are more stable.
And a year from now, that $1 of risk that you took on for 60 cents probably won’t mind if next year it pays 65 cents – an 8% increase.
Q3 earning season kicks off with Travelers:
Travelers Cos., the lone insurer in the Dow Jones Industrial Average, said third-quarter profit fell 67 percent on claims from natural disasters including Hurricane Irene.
Net income slipped to $333 million, or 79 cents a share, from $1.01 billion, or $2.11, a year earlier, the New York-based insurer said today in a statement. Operating profit, which excludes some investment results, was 79 cents a share, missing the 83-cent average estimate of 21 analysts surveyed by Bloomberg.
I’ll also be tracking earnings announcements from leading U.S. companies and international reinsurers again. See Q3 2011 Link-o-rama page at the upper left corner of the blog. This quarter, I’ll start publishing excerpts that summarize results, so you can see quickly how companies are doing.
I reviewed Fatal Risk: A Cautionary Tale of AIG’s Corporate Suicide for Contingencies magazine this month. To quote myself:
Boyd, a veteran Wall Street journalist, writes that AIG’s demise was a suicide, though AIG’s behavior was no more suicidal than a chain smoker’s—a series of unforced errors compounding. Though he doesn’t emphasize it, Boyd’s story also shows how enterprise risk management should, and should not, be practiced.
Hank Greenberg, of course, built the company. While he was there, Boyd writes, ERM consisted of Hank scouring every deal (and every dealmaker). If Hank liked the deal, it happened. If he didn’t, the deal didn’t.
This worked well while Hank was in charge. His successors, in Boyd’s account, lacked Hank’s savvy. Tragedy ensued.
The full article can be found here.
On Thursday night, after putting together The Week in a Minute, I realized that I didn’t have a way to recognize company earnings reports, many of which came out last week. None by itself was a top-shelf news item, but it seemed odd to leave off earnings reports when they were the main thing happening (at least until S&P downgraded U.S. debt).
So I’ve created a page summarizing Q2 earnings. Right now, it provides links to earnings announcements, 10-Q’s, etc., for major U.S. property-casualty companies and major reinsurers. If this is well-received, I will flesh it out.
You can also find the page by following the link in the “Pages” area, which will always be at the top left corner of the blog, just above the Twitter feed.
Update: Links to Q2 company earnings can be found here.
Whatcha got under the hood?
In J-school, you learn to lead with your best stuff. So:
ACE’s allegations range from the facially inaccurate to the apparently clairvoyant, but they all boil down to one evident principle: ACE wishes it had signed a different contract.
From that, I think you can tell the writer – New York Life – is in a snit. The dispute centers on the amount ACE will pay for a New York Life’s Korean subsidiary. It’s playing out in New York State Supreme Court, and SNL Financial has details behind its firewall.
ACE agreed to pay $74.7M for the unit, subject to post-closing adjustments, part of a much larger deal for New York Life Insurance Worldwide. These adjustments cover issues that arise after the original deal is struck – a tiny accounting adjustment is uncovered, or some event changes the value of the company. The adjustments are usually trivial.
Not this time.
ACE says the price should come down more than 25% – $20.9M, citing accounting glitches New York Life uncovered after the deal was struck.
New York Life does not agree. It says the price should go up $17.7M.
So now you have two parties $39M apart on a $75M deal. A gap like that, the deal should die. Instead, it has gone to court.
But the dispute isn’t over the sales price – that will come later. For now, the companies are arguing whether the dispute should end up in court or in an arbitration.
Like most insurance deals, this one had an arbitration clause – sending contract disputes to an arbitration panel, in lieu of court.
ACE argues that in this unique circumstance, arbitration would cause the famed irreparable harm. New York Life gets shirty at the thought:
As ACE well knows, however, the parties are bound to the contract that they signed, not to the imaginary one that ACE now wishes it had negotiated. Not only does the contract between the parties not limit the purchase price adjustment procedures in the myriad ways concocted by ACE in its complaint, but it contains an explicit arbitration provision for disputes exactly like the one at issue here.
No surprise that NY Life worries a court date could cause it irreparable harm.