Underwriting, Expense Discipline Needed in 2011, Say P/C CEOs

The property/casualty insurance industry turned a corner and will show a profitable year for 2010, but underwriting discipline will be more important than ever in 2011, according to property/casualty CEOs.

“2010 was an acceptable year, a good year,” said Liam McGee, chairman, president and CEO, The Hartford Financial Services Group Inc.

But he added a caution: “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.”

McGee was one of the CEOs participating in the Property/Casualty Joint Industry Forum, held by the Insurance Information Institute in New York City.

“This year is one where underwriting discipline and managing costs are going to be more important than ever because we can’t allow the results of 2010 to delude us into thinking they are better than the true underlying numbers suggest,” McGee added.

On a calendar year basis, the P/C industry had a very decent 2010 but that doesn’t tell the whole story, said Anthony J. Kuczinkski, president and CEO, Munich Reinsurance America Inc.

“When you compare us to the banking industry, we had success. But you can’t just look at calendar year results. If you look at the underwriting performance and fundamentals on an accident year basis, they continue to worry me. But for release of prior year reserves to help calendar year results, but for a relatively calm cat year, we would have been in a worse position,” he said.

In a similar vein, Kristian P. Moor, president and CEO Chartis Inc., said that there are a number of positives in 2010’s results that the industry will not be able to carry through into 2011.

“Investment portfolios won’t perform the same, accident year results are much worse than calendar year results and the return on equity for the industry is pretty poor. These are all things people need to pay attention to as we go into 2011,” he said.

CEO panelists agreed that while the P/C industry is still recovering from the effects of the economic downturn, there are some positive signs for premium growth going into 2011.

Cash flows are better, people are paying their bills faster, and delinquencies are fewer, all of which point to an economic recovery, in the view of Ross Buchmueller, president and CEO, PURE Risk Management, whose company specializes in high-value personal lines coverage.

“A favorable trend, maybe a hangover from the recession, is that the consumer is far smarter and certainly more active in seeking smarter solutions. This is a positive sign,” Buchmueller said.

While the recession is impacting exposure growth in terms of fewer autos and homes being insured, those exposures are also changing.

“Customers are re-engineering their products, taking higher deductibles and that has an impact on frequency and severity,” said Jack Salzwedel, president and COO, American Family Insurance.

According to Kuczinkski, true exposure growth will take longer as the P/C industry is still feeling the effects of the economic turnaround.

“Even if it’s begun to bottom out we are not going to see true exposure growth, which would mean we have recovered from the recessionary environment, until late 2011, 2012,” the Munich Re executive said.