I don’t think you fairly look at what reserves are and how they affect an insurance company’s ability to operate profitably over the long term. Failing to reserve results in situations like Reliance National, General Accident, Commercial Union, Kemper, Royal Sunalliance, Providence Washington etc.
Increasing reserves drains a carriers ability to accept more premiums or policy count/PIF. Reserves are not surplus/capacity. Reserves drain capacity. Draining surplus by shifting it to reserves hinders a carrier from writing more premiums/policies unless it is in a very hard market. Carriers need to maintain a certain written premium to surplus ratio. If the carrier’s premiums are far above their surplus then their financial ratings are hammered. Then they can’t raise capital through stock or bond offerings and are stuck in a downward spiral unless they can shed accounts and improve their profitability, but that is difficult depending on the loss/claim cost environment (medical expenses only seem to be going up – see problems in the work comp market). Seeing how the market is softening, having adequate reserve accounts are crucial to the long term stability of a carrier. In a soft market, with flat or decreasing premiums, it will be difficult to fund inadequate reserves – see Kemper, Reliance, etc.
Carriers are not in this investment environment – especially seeing how reserves have to be in bonds, or liquid assets (and both have horrible yields) – going to increase reserves unnecessarily. Also carriers increasing reserves usually have to raise additional capital – see what CNA and The Hartford had to do in 2003. With the return on equity being so poor for insurance companies I can’t see how the financial markets will rush in to buy insurance stocks or bonds when everyone is forecasting a softening market with lower profits for P&C insurance companies. When carriers fool with reserves it is usually to underestimate them so that the written premiums to surplus ratio looks better and they can take in more premiums to invest or try to make an underwriting profit. When a market is softening like we are seeing here it is very difficult to increase reserves and grow your premium at the same time – unless it is a very large and well funded and well managed company (AIG, The Hartford and St Paul Travelers).
One last note – as an industry the top five carriers (State Farm, Zurich/Farmers, AIG, Allstate and St Paul Travelers) control about 20-25% of the total industry reserves. The remaining 2000+ companies have the remaining 75-80% of the reserves. How many more Reliance Nationals are we going to see – where the PA state insurance department is advising the Claimants for both First Party and Third Party losses that the state’s total guaranty fund is not adequate to meet the minimum claim amounts it was supposedly funded for.
Matt,
You state your case and position on reserves very well and much of your reasoning and support for insurance carrier reserves makes sense. However, there is the other side that thinks the insurance carriers- AIG, Chubb, St.Paul Travelers, and all the rest that follow like sheep in a herd, take advantage of reserving requirements and the mechanics of reserving – all to the detriment of the insurance buying community-individuals/personal insurance and corporate buyers/commercial insurance.
It is my personal opinion that the largest insurance companies with their accounting and reserve practices are deceiving the public on as large a scale as the Enron fiasco.
Now that’s just my opinion and I appreciate yours. Thanks.
j-
No, I’m not angered by Matt’s comments, in fact I learned something from his ‘explanation’ inspite of the attitude.
My point is that insurance companies are profiting by their huge reserve accounts. They take write offs of hundeds of millions in profits by increasing reserve accounts- show an operating loss, get tax benefits and still earn interest on the reserve account. Reserve accounts are self serving for insurance companies and are not 100% for the good of the insurance buying public.
Thanks,
Maybe I’m just mentally challenged (that’s PC for thick as porcine excrement), but I don’t really understand why insurers are paying out on asbestos at all. Basically, the CGL policy excludes deliberate act. The first person to go on record about the dangers of asbestosis was Pliny the Elder several thousand years ago, when he wrote that Hebrew slaves working in the asbestos mines suffered lung ailments leading to death and should, therefore, be issued with pigskin masks (not very kosher) to filter out the fibres. And in the 20th century asbestos manufacturers act surprised. “How could we know about the dangers of our product? We don’t have a classical education.”
YEAH, IM SURE THE LAWYERS ARE CELEBRATING
THIS VICTORY, BUT NOT FOR THEIR CLIENTS,
ITS ALL ABOUT THAT 40%!!!!!!!!!!!!!
MY DAD DIED IN 1997, I CANT EVEN GET MY LAWYERS TO CALL ME TO ADVISE WHAT IN THE
*#@! IS GOING ON WITH HIS CASE?
OF A 250,000 CLAIM WE GOT 25,000 FOR MANSVILLE WITH THE PROMISE WE WOULD GET THE REMAINING IF IT WERE EVER AVAILABLE?
IVE CALLED FOR 2 MOS TO FIND OUT IF THIS
TRAVELERS SETTLEMENT WILL BENEFIT US…
CANT GET A PHONE CALL IMAGINE……….
how on earth did the lawyers screw up so bad and leave there clients anything? had to be a oversite on there part i guess.there should be a huge shame feeling on the attorneys minds!! yeah right!!!but we as childern of the clients know the attorneys can’t spend there awards from law suits in hell!!!!
Iwould like to know how to go about filling a claim against Johns Manville , as I have been diagnoise with asbestos in the liver and lungs, I grew up in Waukegan, Il. and swam in the lake there and fished the water, can’t figure out where I got the abestos from other than there as the plant was right there. Thank you, Don Gehrls
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I will refrain from commenting on Matt’s latest disertation.
Kevin you tell it like it is and I suppose that’s bothersome to some.
David:
I don’t think you fairly look at what reserves are and how they affect an insurance company’s ability to operate profitably over the long term. Failing to reserve results in situations like Reliance National, General Accident, Commercial Union, Kemper, Royal Sunalliance, Providence Washington etc.
Increasing reserves drains a carriers ability to accept more premiums or policy count/PIF. Reserves are not surplus/capacity. Reserves drain capacity. Draining surplus by shifting it to reserves hinders a carrier from writing more premiums/policies unless it is in a very hard market. Carriers need to maintain a certain written premium to surplus ratio. If the carrier’s premiums are far above their surplus then their financial ratings are hammered. Then they can’t raise capital through stock or bond offerings and are stuck in a downward spiral unless they can shed accounts and improve their profitability, but that is difficult depending on the loss/claim cost environment (medical expenses only seem to be going up – see problems in the work comp market). Seeing how the market is softening, having adequate reserve accounts are crucial to the long term stability of a carrier. In a soft market, with flat or decreasing premiums, it will be difficult to fund inadequate reserves – see Kemper, Reliance, etc.
Carriers are not in this investment environment – especially seeing how reserves have to be in bonds, or liquid assets (and both have horrible yields) – going to increase reserves unnecessarily. Also carriers increasing reserves usually have to raise additional capital – see what CNA and The Hartford had to do in 2003. With the return on equity being so poor for insurance companies I can’t see how the financial markets will rush in to buy insurance stocks or bonds when everyone is forecasting a softening market with lower profits for P&C insurance companies. When carriers fool with reserves it is usually to underestimate them so that the written premiums to surplus ratio looks better and they can take in more premiums to invest or try to make an underwriting profit. When a market is softening like we are seeing here it is very difficult to increase reserves and grow your premium at the same time – unless it is a very large and well funded and well managed company (AIG, The Hartford and St Paul Travelers).
One last note – as an industry the top five carriers (State Farm, Zurich/Farmers, AIG, Allstate and St Paul Travelers) control about 20-25% of the total industry reserves. The remaining 2000+ companies have the remaining 75-80% of the reserves. How many more Reliance Nationals are we going to see – where the PA state insurance department is advising the Claimants for both First Party and Third Party losses that the state’s total guaranty fund is not adequate to meet the minimum claim amounts it was supposedly funded for.
Matt,
You state your case and position on reserves very well and much of your reasoning and support for insurance carrier reserves makes sense. However, there is the other side that thinks the insurance carriers- AIG, Chubb, St.Paul Travelers, and all the rest that follow like sheep in a herd, take advantage of reserving requirements and the mechanics of reserving – all to the detriment of the insurance buying community-individuals/personal insurance and corporate buyers/commercial insurance.
It is my personal opinion that the largest insurance companies with their accounting and reserve practices are deceiving the public on as large a scale as the Enron fiasco.
Now that’s just my opinion and I appreciate yours. Thanks.
David, are you disputing Matt’s comments? Seems to make perfect sense and that seems to anger you and Kevin. Why is this?
j-
No, I’m not angered by Matt’s comments, in fact I learned something from his ‘explanation’ inspite of the attitude.
My point is that insurance companies are profiting by their huge reserve accounts. They take write offs of hundeds of millions in profits by increasing reserve accounts- show an operating loss, get tax benefits and still earn interest on the reserve account. Reserve accounts are self serving for insurance companies and are not 100% for the good of the insurance buying public.
Thanks,
Maybe I’m just mentally challenged (that’s PC for thick as porcine excrement), but I don’t really understand why insurers are paying out on asbestos at all. Basically, the CGL policy excludes deliberate act. The first person to go on record about the dangers of asbestosis was Pliny the Elder several thousand years ago, when he wrote that Hebrew slaves working in the asbestos mines suffered lung ailments leading to death and should, therefore, be issued with pigskin masks (not very kosher) to filter out the fibres. And in the 20th century asbestos manufacturers act surprised. “How could we know about the dangers of our product? We don’t have a classical education.”
YEAH, IM SURE THE LAWYERS ARE CELEBRATING
THIS VICTORY, BUT NOT FOR THEIR CLIENTS,
ITS ALL ABOUT THAT 40%!!!!!!!!!!!!!
MY DAD DIED IN 1997, I CANT EVEN GET MY LAWYERS TO CALL ME TO ADVISE WHAT IN THE
*#@! IS GOING ON WITH HIS CASE?
OF A 250,000 CLAIM WE GOT 25,000 FOR MANSVILLE WITH THE PROMISE WE WOULD GET THE REMAINING IF IT WERE EVER AVAILABLE?
IVE CALLED FOR 2 MOS TO FIND OUT IF THIS
TRAVELERS SETTLEMENT WILL BENEFIT US…
CANT GET A PHONE CALL IMAGINE……….
how on earth did the lawyers screw up so bad and leave there clients anything? had to be a oversite on there part i guess.there should be a huge shame feeling on the attorneys minds!! yeah right!!!but we as childern of the clients know the attorneys can’t spend there awards from law suits in hell!!!!
Iwould like to know how to go about filling a claim against Johns Manville , as I have been diagnoise with asbestos in the liver and lungs, I grew up in Waukegan, Il. and swam in the lake there and fished the water, can’t figure out where I got the abestos from other than there as the plant was right there. Thank you, Don Gehrls
how do i find out if i am to get the monies that my lawyer settled in the case, my attorney is mia