Insurer financials improve, but concerns remain: Panel
December 15, 2010
Business Insurance - 01/16/11
By Rodd Zolkos
NEW YORK—A group of top insurance company executives gave the industry acceptable or better marks for its performance during 2010, though some voiced concerns that calendar-year results concealed some troubling issues.
Speaking as part of a CEO panel at the annual “Property/Casualty Joint Industry Forum” last week in New York, Anthony J. Kuczinski, president and CEO of Munich Reinsurance America Inc. in Princeton, N.J., said, “You can't just look at calendar years.”
Insurers' release of prior-year reserves can create a deceptive picture of performance, with calendar-year results that may be very different from underwriting results, he said. Companies' management teams need to recognize the difference between calendar-year figures and their companies' actual underwriting performance, Mr. Kuczinski said.
2010 was perhaps “a good year overall but a year that concerns me going forward,” Mr. Kuczinski said.
Another panelist, Ross Buchmueller, president and CEO of Privilege Underwriters Inc. in White Plains, N.Y., said he sees significant differences between the top-performing insurance companies and those at the bottom.
Liam E. McGee, chairman, president and CEO of Hartford Financial Services Group Inc. in Hartford, Conn., called 2010 an “acceptable year,” particularly given the outlook when the year began. But, he said, “You can't avoid the fact that in those good numbers you've got a release of prior-year reserves and returns that are not the kind you want over trend.”
Asked whether companies' ability to release prior-year reserves to boost current-year results has been largely exhausted, Kristian P. Moor, president and CEO of Chartis Inc. in New York, said, “I would be surprised if the significance we've seen in the past couple of years continues through 2011.”
Several executives indicated they're seeing signs of an improving economy, though it may take time before it's reflected in insurers' business.
On the commercial side, Mr. Moor said, “We've definitely seen a bottoming of the economic situation.” But as the economy continues to improve, “it's going to take a little while before we start to see the effects.”
“We're not seeing evidence of exposure growth anywhere in the portfolio, maybe in very small spots,” said Mr. Kuczinski.
Mr. McGee said Hartford is seeing some rate improvements on personal lines, as well as signs that the small-business economy is starting to turn.
“I think for us, the challenge remains in the middle market and the higher end,” Mr. McGee said, adding that the market for that business remains very competitive. “It's not rational right now.”
Other executives also indicated they see considerable market competition.
“I think companies are looking at whatever way they can to hang onto market share they've got and strategies to grow that market share,” said Jack Salzwedel, president and chief operating officer of American Family Mutual Insurance Co. in Madison, Wis.
Mr. Kuczinski noted that on the commercial side, the industry is almost six years into a declining rate environment. “We're at rate levels that are 2001 or prior,” he said.
On the reinsurance side, he said, “I think generally speaking the reinsurance industry is healthy,” and has been “relatively” more disciplined in this soft market period than in the past.
Despite the improving economy, the climate remains a difficult one for brokers, according to some panelists. “I think it's really tough to be a commercial lines broker,” said Privilege Underwriters' Mr. Buchmueller.
For agents and brokers looking for organic growth, there is increasing recognition that they can't rely solely on product. Instead, they need to position themselves more as a solutions provider, said Hartford's Mr. McGee. “Agents are looking to provide more value added to their customers,” he said.
In turn, he said, those agents and brokers are looking to insurers to help them provide those sorts of solutions.
The panelists said they felt the insurance industry basically had fared well in federal financial regulatory reform efforts.
“I think we all feel that we dodged a bullet” Mr. Salzwedel said. Still, with new agencies coming into operation and regulations yet to be written, “it's critical for us to keep an eye on it and make sure scope creep doesn't happen,” he said.
“The key is how is the (Federal Insurance Office) going to operate and I think the creep question is the right question,” Mr. Moor said.
“I think the last (financial) crisis proved the current regulatory environment works for policyholders,” he said. While saying the existing state-based regulatory system might not be the most efficient system for insurance providers, Mr. Moor said he'd want to see any new regulatory scheme preserve the best aspects of the existing system.