P/C Executives See Better Profitability in 2011

January 13, 2011

Leaders of the property/casualty insurance industry believe the worst of the financial crisis is over and that the new year will bring improved profitability.

In fact, an overwhelming majority (94 percent) of P/C executives expect better profitability in 2011.

By line of insurance, 59 percent believe there will be an improvement in personal auto and 61 percent in homeowners. However 86 percent do not expect an improvement in workers compensation and 76 percent of respondents do not expect an improvement in commercial lines.

These views are held by 100 executives surveyed by the Insurance Information Institute at its 15th annual Property/Casualty Insurance Joint Industry Forum in New York this week.

In terms of inflation, 57 percent of executives said they believe it will accelerate in 2011. Looking at premium growth, 53 percent of respondents believe that it will remain flat; 31 percent believe it will be positive; and 16 percent believe it will be negative.

Compared to 2010, this year will see a higher combined ratio than last year, in the view of 68 percent of respondents. The combined ratio was 101.2 in the first nine-months of 2010. A combined ratio over 100 means that claims payments plus expenses exceeded insurance premiums. One way to lower expenses is by consolidation, which might explain why 86 percent said they expect an increase in consolidation among insurers and reinsurers.

Insurers will be operating in 2011 in an improving economy but that same economy will present challenges.

“Looking to 2011, exposures will continue the growth we saw in the second half of 2010 as the economy continues its recovery, implying increases in insurance premium volume,” said Dr. Steven Weisbart, senior vice president and chief economist with the I.I.I.

“Still, the low interest rate climate, which will likely persist throughout 2011, will challenge insurers to price risks in closer relation to their claims potential. Similarly, business bankruptcies might ease off in 2011 from two years of high rates but are likely to continue at troubling levels, so that the demand for commercial insurance in 2011 will rise from a smaller base than would otherwise have been the case,” he added.

In the area of torts, 53 percent of respondents believe that tort trends will remain the same in 2011; 37 percent believe it will deteriorate; and only 10 percent believe it will improve.

On the investment side, 88 percent of industry leaders expect an up year in the equity markets in 2011 (but for the industry as a whole, equities constitute only about 18 percent of invested assets). About 70 percent of invested assets are in bonds.

Industry leaders were asked whether comprehensive financial services reform approved by Congress and signed into law by President Obama in 2010 will be helpful, harmful or neutral to the P/C industry. Fifty-nine percent believed it would be neutral, 33 percent believed the new law will be harmful and 8 percent believed it would be helpful.

Industry leaders were also asked whether they thought the new Federal Insurance Office would be a positive or a negative for the industry. The responses were tied; 50 percent thought it would be positive and 50 percent thought it would be negative.

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