P&C insurers’ survival challenged by softening market: ISO

As competition looms in the U.S. property & casualty market, insolvency could be the order of the day for some insurers, says Insurance Services Office (ISO) CEO Frank Coyne.
Coyne made the comments as part of the Insurance Accounting & Systems Association Conference in Las Vegas this week.
Coyne points to evidence of softening conditions despite many insurers still posting poor results and rising adverse loss development. This builds on a rising trend of insolvency in the U.S. marketplace, rising from an average 13 per year in the 1970s, to about 30 per year in the 1908s and 1990s, and 36 per year since 2000. While in 1990 there were about 1,300 private insurers in the U.S., by 2002 there were just over 900, a 26% decline.
Coyne adds that while the industry’s balancesheet improved last year, its returns fall well below those of the Fortune 500. “The industry’s rate of return on average surplus dropped from 13.7% in the 1970s to 10.3% in the 1980s to 8.7 percent in the 1990s. And for the first four years of this decade, the industry’s rate of return dipped further to 3.6%.” He adds there remains need to boost industry loss reserves, with the ISO putting reserve deficiency at US$89-107 billion at the end of 2003.
This does not bode well given signs of competition evidenced by ISO data showing commercial rate increases peaked in 2002, as well as consumer price index figures showing a slowdown in personal auto insurance rates in the first quarter of this year.
And, Coyne adds, “with industry surplus having risen to US$347 billion at year-end 2003, it is no coincidence that competition is intensifying.”
He says insurers will need both the data to underwrite and the fortitude to adhere to underwriting standards as competition heats up.