Insurance Industry May Be In For Some Lean Times Ahead
With the exception of a few high profile names, the insurance industry has weathered the sub prime collapse reasonably well as opposed to other segments of the financial sector. However, profits for the fourth quarter were down significantly for the industry as a whole and many analysts expect that trend to continue for the next couple of years.
Underwriting profits have been trending downward for years since the high rates after Hurricane Katrina started to come fall. With the lack of a major insured catastrophe in the last few years, price competition is expected to heat up which will be to the benefit of most consumers. Rates are expected to fall for all segments of the insurance industry with the notable exception of health insurance which unfortunately is still expected to outpace inflation.
Investment income, which has made up the bulk of the industry’s profit has taken a big hit in recent months. Increased volatility in the stock market as well as disruptions in the bond market have both been to blame. It will become increasingly difficult to maintain the level of investment income of recent years with the economy in the state it’s currently in.
However, the financial strength of the industry is not in doubt. Large capital reserves have been built up since Katrina and the claims paying ability of the industry is as strong as it’s ever been.
