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Insurers and Financials |
nodoodahs
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 Posted: Mon Jul 25, 2005 2:03 pm Post subject: Insurers and Financials |
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I almost posted this on the "abandon ship" thread but did not want to threadjack.
To the extent that the insurers' portfolios are heavier with treasuries and other corporates, and to the extent that they did a good job of laddering their bonds (http://www.investopedia.com/articles/02/120202.asp), the insurers should enjoy this environment for at least a year or so. I think that the coming outperformance on their investment income, which typically depends on yield, will counterbalance any risk of default from the GSE/MBS even if the housing bubble pop is worse than I think it will be. Plus, the rising rate environment gives them more room to cut rate and add growth - Conning and Company has a report out with a title like "insurers are expected to outperform through 2007" but I don't subscribe to them, maybe someone could post or link to that? The peak of P&C market hardening continuing into the softening market are good times for insurer profitability. We are now just into the softening cycle and should have a good ride if we pick the right steed(s). Unfortunately IMO, the CAS doesn't seem to see the interest rate/insurance cycle connection. Pity.
If you superimpose the chart on page 4, here (http://www.casact.org/coneduc/reinsure/2005/handouts/doucette.ppt), with the FFR data here (http://research.stlouisfed.org/fred2/series/FEDFUNDS/118/Max), it’s plain to see that the underwriting cycle for U.S. P&C insurers is driven in large part by the FFR and by the return on average invested assets. Also see slide 7 here (http://server.iii.org/yy_obj_data/binary/567822_1_0/texas.pdf). The returns for P&C insurers in the U.S. are best when the market had been hard and has started to soften.
FYI the non-U.S.-based insurers typically have more reliance on equities in their portfolios, than the U.S.-based insurers in the S&P500 financial index. Forewarned is forearmed ...
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Insurers and Financials Replies |
nodoodahs
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| Posted: Tue Aug 30, 2011 1:16 pm Post subject: Re: Insurers and Financials |
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| rffrydr wrote: |
What's the verdict?
I said in '08 it was all about yield--but the "hold-to-maturity" may have been these guys ace in the hole.
Picked up a little KCLI--which was a nice tell, bottoming BEFORE 6.66% 08/08-8  |
As a group, P&C insurers did OK, not hugely impacted by the structured bonds, and in the U.S., their generally low allocation to equities helped - provided of course they actually held to that allocation and bought/rebalanced as it dropped.
| HenryTo wrote: | | The practical question now is: Why purchase insurance anymore if coverage is minimal and insurers would do anything to get out of paying claims? |
Actually the coverage isn't minimal and most insurers pay every dollar of every claim that's owed.
Flooding is not a covered peril and hasn't been for decades. NFIP has displaced the market there.
Reducing risk has primarily been driven by some of the larger publicly-traded insurers (ALL) closing off new business in high-risk areas and allowing natural churn (at 85-90% annual retention) to shrink the business (see ALL market share in FL for an example). This allows either niche E&S carriers (or the State, see below) to pick up the slack.
Raising prices is just the market working, actually prices have been stunted by the government through active suppression and through undercutting the market with "wind pools" and the like (all of which are technically, actuarially, insolvent).
The only real tightening of terms and conditions that I've seen is the deductible. Two tactics here, one is raising the minimum allowable wind deductible (where there is a separate deductible for wind) to something on the order of 2% of home value (the insured pays for the first $4000 of damage to a $200K home), or putting in a separate "named storm deductible" that only applies when damage is wind from a named storm. This is only done with State approval of the endorsement, and usually is 5% with a chance to "buy it down" to 2%.
You want flood cover, you can buy it ... from the NFIP. It won't be 100% but it's there and it's subsidized by the taxpayer, so you might as well.
You want earthquake cover, you can buy it from your insurer or agent. In most places, it's insanely cheap.
It's a good buy, if you buy what you need, that's really the only value a good agent can provide nowadays.
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rffrydr
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Location: Sunny California
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| Posted: Mon Aug 29, 2011 11:23 pm Post subject: Re: Insurers and Financials |
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| nodoodahs wrote: | I almost posted this on the "abandon ship" thread but did not want to threadjack.
I think that the coming outperformance on their investment income, which typically depends on yield, will counterbalance any risk of default from the GSE/MBS even if the housing bubble pop is worse than I think it will be. |
What's the verdict?
I said in '08 it was all about yield--but the "hold-to-maturity" may have been these guys ace in the hole.
Picked up a little KCLI--which was a nice tell, bottoming BEFORE 6.66% 08/08-8
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Last edited by rffrydr on Tue Aug 30, 2011 2:46 pm; edited 1 time in total |
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HenryTo
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Location: Los Angeles, California
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| Posted: Mon Aug 29, 2011 10:30 pm Post subject: |
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The relative non-impact of Hurricane Irene on the P&C's balance sheets, courtesy of Morningstar. The practical question now is: Why purchase insurance anymore if coverage is minimal and insurers would do anything to get out of paying claims?
| Quote: | | With Hurricane Irene having largely dissipated, it seems that the impact on insurance companies will be much less than originally projected. Initial tallies place the estimate for total losses due to Irene at somewhere in the neighborhood of $7 billion, much lower than the $20 billion in losses some experts were predicting heading into the weekend. Of that $7 billion, it seems that around $1 billion-$3 billion will be covered by insurance. The primary reason insurance companies are likely to avoid the largest share of the damages was that most of the losses will be caused by flooding, which is covered under the National Flood Insurance Program administered by the U.S. government. Furthermore, after Hurricane Katrina caused industry losses of nearly $50 billion, the industry has been proactive about reducing its risk to coastal storms. Primary insurers have raised prices and tightened terms and conditions, including raising deductibles for wind coverage. While the losses will be material for many of the property and casualty companies we cover, we are keeping our fair value estimates in place. Insurance is a volatile business, and paying claims for occasionally large losses is part of the natural course of business for these companies. |
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