TE is correct on the investment income. Combined Ratios are on premiums, so while the accounting statement shows a net loss now, the industry will earn that investment income over several years before all the losses are paid out.
Furthermore, an insurance company earns investment income on surplus and reserves, which together are usually 4-5 times the size of the annual written premium.
As for AIG, the individual insurance companies that make up AIG are all sound. It was the parent company that had issues. Fortunately, state regulators limit the transfer of funds from the insurance entities to the parent, or there would have been more problems.
OK lets say that Carrier X’s combined ratio is 105% including investment income.
What is their targeted ratio, and how do they get there in a horrible investment market? Buying fixed income at 3%? Invest in stocks and end up losing money (which I suppose is deductible)? Even with time value of money equations, at some point the carrier has to make a net profit so that surpluses remain intact.
As a CEO of a large Regional Brokerage the only guy I’ve read who “gets it” is the gay at Hales who wrote November’s Hales Report. He nailed it. Marshberry and Regean declared the hard marke was upon us and the hales guy takes the exact opposite view. He’s right. No one is talking about the Brokers. I agree…many will sell before they go upsides down in 2009. Ironshore/Bermuda is recapitalizing and “A” rated small regional insurers are offering CG2010 11/85 on California contractors! Rate has bottomed but exposures falling will force a never before seen underwriting suicide.
Westfield is an Ohio regional A-rated admited offering CG2010 11/85 and just approved to continue the madness. Ironshore of Bermuda just stole Kelley from Lexington and they’ve also filed to offer the same for contractors.
When the dust settles, what few carriers are left will be owned in some fashion by us taxpayers
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TE is correct on the investment income. Combined Ratios are on premiums, so while the accounting statement shows a net loss now, the industry will earn that investment income over several years before all the losses are paid out.
Furthermore, an insurance company earns investment income on surplus and reserves, which together are usually 4-5 times the size of the annual written premium.
As for AIG, the individual insurance companies that make up AIG are all sound. It was the parent company that had issues. Fortunately, state regulators limit the transfer of funds from the insurance entities to the parent, or there would have been more problems.
OK lets say that Carrier X’s combined ratio is 105% including investment income.
What is their targeted ratio, and how do they get there in a horrible investment market? Buying fixed income at 3%? Invest in stocks and end up losing money (which I suppose is deductible)? Even with time value of money equations, at some point the carrier has to make a net profit so that surpluses remain intact.
Not only that, but what about the effect of their own deteriorating stock value on the market and its effect on surplus?
As a CEO of a large Regional Brokerage the only guy I’ve read who “gets it” is the gay at Hales who wrote November’s Hales Report. He nailed it. Marshberry and Regean declared the hard marke was upon us and the hales guy takes the exact opposite view. He’s right. No one is talking about the Brokers. I agree…many will sell before they go upsides down in 2009. Ironshore/Bermuda is recapitalizing and “A” rated small regional insurers are offering CG2010 11/85 on California contractors! Rate has bottomed but exposures falling will force a never before seen underwriting suicide.
Regionals are doing dumb things on Contractors in California??? What happened, did WEST BEND MOO-TUAL start writing contractors in California??
Roger that.
Westfield is an Ohio regional A-rated admited offering CG2010 11/85 and just approved to continue the madness. Ironshore of Bermuda just stole Kelley from Lexington and they’ve also filed to offer the same for contractors.
When the dust settles, what few carriers are left will be owned in some fashion by us taxpayers