Earnings volatility continues to decline: Aon

Property & casualty insurers have seen a combination of underwriting discipline and capital management lead to lower earnings volatility in 2003, according to an annual study by international broker Aon Corp.
The study measures earnings volatility over one, two, three and five-year periods ending December 31, 2003, and includes more than 60 publicly traded insurers and reinsurers. For 2003, earnings were on average 18% less volatile than in 2002, on the back of continued rate increases and low catastrophe losses, Aon concludes. Volatility was lowest in the personal lines sector, as in 2002.
The study looks at several characteristics of volatility and for the first time in 2003 includes return on equity (ROE). Average weighted ROE in 2003 grew to 10.9% from 6.5% in 2002 and 3.5% in 2001. For 2003, Roe was 9.7% in commercial lines, 14.4% in specialty lines, 6.5% in personal lines and 13.1% in reinsurance.
Among the “best performers” over the one-year period in terms of low volatility are: ACE (commercial lines); RLI (specialty lines); Mercury General (personal lines); and Montpelier Re (reinsurance). Over the five-year period, top performers include: AIG (commercial lines); RLI; ALFA (personal lines); and Everest Re (reinsurance).