The property and casualty insurance industry was headed towards record profits last year, only to have Katrina et al blow the black ink right off the books. The latest estimates indicate 2005 will actually result in a net loss for the industry as a whole. This will likely inspire a hardening of the market, as we have been predicting for several months.
The industry-wide combined ratio (losses plus expenses before investment income) should end up around 105% for 2005. While analysts expect 2006 to improve, I wouldn’t put much, if any, stock in their predictions – the vagaries and severity of natural disasters have made a mockery out of human predictive capabilities.
From a financial perspective, the industry’s hit in 2005 resulted in a Return on Equity (ROE) of 9.5%, hardly a stellar result but not too bad considering historically low interest rates and the up-and-down nature of the equity markets. On the bright side, the renewal of the Terrorism Risk Insurance Act (albeit in modified, and slimmed-down form) for two more years has added a lot of stability to what otherwise would have been a very nervous market.
What does this mean for you?
Pressure on underwriting results should mean a stronger focus on managing claims. Some of the recent initiatives by companies like Crawford indicate more and smarter approaches are in the offing. And that’s good news.
Jan
6
