Category Archives: Property/Casualty

Insurance Forecast 2009

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I was fortunate enough to attend the Conning Research Insurance Industry Outlook and Forecast 2009 at St. John’s University yesterday. The lecture covered the economic forecast, the outlook on property/casualty, along with forecasts for the life and health insurance industry.

Stephan Christiansen, director of research at the firm, forecasted the following growth in economic drivers:

Annual Data 2008 2009 2010
GDP Growth 1.1% -2.8% 1.8%
CPI 3.8% -0.8% 1.2%
Nom. GDP 4.9% -3.6% 3.0%
Fed. Funds 0.25% 0.25% 1.00%
5-year T-Note 1.6% 2.5% 3.2%
10-Year T-Note 2.3% 3.4% 4.0%

Christiansen pointed to inflation as a key cost-driver and that the time between premium collection and loss payout is susceptible to inflation, meaning that premiums will stay the same while losses increase.

As far as the P/C industry is concerned, Christiansen stated that, although the sector has experienced a recent history of strong ROE and falling combined ratios, the outlook is negative due to the forecasted continued deterioration of the economy and thus, exposure drivers. The research also suggests that, as far as commercial lines go, premium growth remains weaker than that of personal lines, but should recover by 2011 with rates firming in conjunction with the economic recovery. Christiansen also stated:

Looking beyond this year, an expected slow economic recovery in 2010 and a return to more robust growth in 2011 lead to an increase in both premium and loss exposures, but also may include the start of an acceleration in inflationary factors that drive loss severity. We see indications of price firming in personal lines, but continued mixed conditions in commercial lines. Capital conditions remain strong, particularly in commercial lines, and it is likely that further stresses will have to occur before any significant broad-based change in pricing will emerge.

According to Conning Research & Consulting, the recovery of not only the economy, but also the P/C sector, will begin in 2011 — barring any unforseen natural catastrophes or even more unprecedented chaos within the financial sector.

Agree?

Smoke Damage: The Aftermath of a Fire

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According to the U.S. Fire Administration, in 2007 alone, there were an estimated 530,500 structure fires in the United States, resulting in a direct loss of more than $10.5 million.

Fire-related damage and loss can leave a family homeless or a business bankrupt if insurance coverage is not obtained. Even with complete fire insurance coverage, however, smoke damage can put a huge dent in out-of-pocket expenses.

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According to Shay Kalmanovich, CEO of 911 Restoration, a certified mold, water and smoke damage restoration company:

Smoke often finds its way through plumbing systems, using holes around pipes, ventilation systems and heating and cooling systems, to move from floor to floor, damaging the equipment throughout a home or building. Items salvaged after a fire have the potential to be more damaged from the smoke rather than the fire.

After contacting your insurance agency following a fire, Kalmanovich recommends families and business owners keep the following in mind:

  • Adjusters should come within one week to take photographs and assign a restoration company by the second week.
  • It is very important to take your own photos of everything.
  • There are two types of fires in the insurance world, “in-house” and “disaster.
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    ” In-house fires are usually limited to a single home or business while disasters affect many. Find out what kind of fire coverage is appropriate to your situation and then make sure your insurance company or a government agency will cover the costs of your damage.

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  • Your insurance coverage should include coverage for both the structure — walls, carpet, cabinets, fixtures, air conditioner (anything you can’t pick up and take with you) — and personal property (all of your personal belongings).

The Institute for Business and Home Safety has a very informative and continuously updated Disaster Safety Blog, which not only provides pertinent information on fire safety and insurance issues, but other natural and not-so-natural disasters as well.

fire damage

Bad News for the P/C Insurance Sector

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Though the insurance industry as a whole has fared somewhat well during the current financial crisis, a report out today says P/C insurers haven’t been so lucky.

A.M. Best has reported a surprising drop in net income of 87% for the U.S. P/C insurance sector during the first quarter of 2009.

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The report states that:

  • Net income for commercial lines dropped 52.9% to $1.6 billion in the first quarter, compared to the same quarter last year.
  • Net premiums written for commercial lines fell 7.
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    8% to $46 billion in the quarter.

  • Underwriting losses decreased from .
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    5 billion in the first quarter of last year to $500 million in the first quarter of this year.

  • Policyholder surplus dropped 14.6% to $197.6 billion, according to the report.

Best stated that though the outlook for the U.S. P/C industry remains somewhat bleak for the remainder of the year, the projection for the commercial lines segment (barring mortgage guarantee and financial guarantee insurers) should post an underwriting profit.

The report is available for $65 (for nonsubscribers) at bestweek.com.

Santa Barbara Fire: A Costly Disaster

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Though the wildfire in Santa Barbara county has been mostly contained, damage estimates continue to rise. Authorities say 77 homes have been destroyed — nearly double what was originally estimated — in the affluent Southern California area of Jesusita.

The median home value for the Jesusita area is just over USD 500k, but it does contain a number of multi-million dollar mansions—several of which reportedly have been destroyed.

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Buildings in the area are constructed of stucco walls and chimney finishes, have shed (flat) roofs covered with low-pitched clay tile and terra cotta or cast-concrete ornaments. The homes generally have little cleared area separating them from the surrounding vegetation, which consists of an equal mix of chaparral, brush, and conifers. In many cases, even homes that do have partial setbacks will be affected by encroaching flames, depending on the direction of the fire and accompanying winds.

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The blaze is 65% contained and all but 375 residents from 145 homes had been allowed to move back in. Insured losses from this fire are expected to be large, but residents of California are no strangers to insurance claims resulting from wildfires. As the Insurance Information Institute reports:

Nine of the ten largest wildfires, in terms of insured property losses, occurred prior to 2007, according to ISO data. A 1991 wildfire in Oakland, California tops the list with $ $2,687 in insured losses in 2008 dollars. In October 2007 a series of wildfires broke out across Southern California, damaging thousands of homes and causing widespread evacuations.

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The largest of these fires, the October 21 Witch fire, resulted in 4 billion in insured losses and was the second most damaging wildfire since 1970, in 2008 dollars.

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