By DAN REYNOLDS, senior editor of Risk & Insurance®
The U.S. property/casualty sector's combined ratio breached 100 in the first quarter of 2009 and should continue to be pressured by mortgage and financial guaranty losses for the remainder of the year, according to a preliminary report by analysts with the Oldwick, N.J.-based A.M. Best Co.
Ed Keane, a senior financial analyst with A.M. Best, estimates that losses among guarantors of the stricken U.S. housing and financial sectors will add two points to what A.M. Best thinks will be a combined industry ratio of 101.1 for 2009, down from 104.7 in 2008.
With preliminary results showing an industrywide combined ratio of 100.6 for the first quarter, Keane said this week that he feels confident Best's overall 2009 estimate of 101.1 is looking solid--barring, of course, outsized catastrophe losses from tropical storms that typically strike in the second and third quarters.
"It is the first quarter, so you won't see the impact of the large catastrophes. I mean, last year, you had Hurricane Ike as well as Gustav, so those caused some losses in the third and fourth quarters," Keane said.
Although Keane said the mortgage and financial guaranty segments represent only 1 percent of overall U.S. insurance business, losses are so gruesome in that sector that they ended up adding points to the overall combined ratio.
The first quarter 2009 combined ratio in the mortgage and financial guaranty segment was 220, according to A.M. Best's estimates.
"It is definitely still having an impact. We saw it all through 2008, and it is continuing through 2009. And we will probably see it through the remainder of 2009," Keane said.
PRICES MUST FOLLOW
With 2008's overall combined ratio having soared well above 100 and indications that 2009 will stay above 100, Keane said, it is only a matter of time until prices start to rise. Although the general view is that prices have stopped falling and flattened in many lines, A.M. Best analysts are sticking with their prediction that an overall increase in pricing will occur in many lines in the second half of 2009.
According to Best, the coverage lines that include aircraft, credit, mortgage, international and financial guarantors had a combined ratio of 127.1 in 2008 and can expect to have a combined ratio of 113.6 in 2009.
Areas that don't look anywhere near as painful include inland marine, which is projected to have a combined ratio of 82.5 in 2009, the same figure as it did in 2004, and medical malpractice, which is projected to have a combined ratio of 98.5 in 2009, as opposed to its 2004 figure of 111.
WORKERS' COMP CONTINUES ACHING
Workers' compensation is projected to be a continued problem for carriers. That sector had a combined ratio of 106 in 2008, up from 103.4 in 2007. A.M. Best analysts are projecting a 108.5 combined ratio for workers' comp in 2009.
Experts offer differing opinions as to whether a down economy increases the frequency of workers' comp claims. Some say that employees avoid reporting injuries out of fear for their jobs during layoff season. But as older workers medicate themselves to mute the pain in the effort to stay on the job, severity is bound to spike eventually; thus, the gloomy workers' comp projection for 2009.
June 17, 2009
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