Insurance Quotes & Advice

It was reported that the property/casualty insurance sector recorded $1.3 billion in losses for the first quarter.  Insurers saw a decline in underwriting and investment income over the same period from a year ago.

The property/casualty insurance industry suffered a $1.3 billion net loss after taxes for first-quarter 2009, which constitutes a $9.8 billion adverse swing from the industry’s $8.5 billion in net income after taxes in first-quarter 2008. And reflecting the swing to a net loss after taxes, the insurance industry’s annualized overall rate of return on average policyholders’ surplus dropped to negative 1.2 percent in first-quarter 2009 from positive 6.6 percent in first-quarter 2008.

With the stock market reeling the deep investment losses should not come as a surprise.  What is most disconcerting is the sharp swing in underwriting income, where losses more than quadrupled from $.6 billion to a staggering $2.5 billion.

We are seeing a general decline in insurance demand and the nation’s job losses are finally catching up with the industry.  Insurers have had to cut premiums in order to attract customers which have resulted in the large underwriting losses.

The annuity sector faces probably faces the most serious difficulties ahead, they are tied in paying out contracts whose values are guaranteed at a time when their own investment values have yet to recover.  Another major concern for the sector is the potential for a large catastrophe payout since the east coast is in the middle of the Atlantic hurricane season.

Earlier this week The Hartford was forced to accept $3.4 billion in TARP funds and there are other carriers facing liquidity dangers as well.

A report from the accounting firm Ernst & Young states the biggest risk facing the insurance industry is still the financial crisis.  Deep investment losses have affected many major carriers and those portfolio values won’t recover overnight.

“As a result of the current economic conditions, there have been significant changes in the risks since the release of our 2008 report,” says Peter R. Porrino, Global Director of Insurance in Ernst & Young’s Global Insurance Center. “As insurance companies continue to navigate their way through this downturn, they should be focusing on changing their approach to risk management, regulatory analysis and the communication of risk information.”

Financial market crisis: the crisis has severely battered the financial services industry. Even if systemic risk abates, the consequences have been so profound that they are likely to shape the industry for the next decade.

To their detriment a number of insurance companies have been active participant in derivatives markets, the most famous case being AIG, whose spectacular downfall shocked the industry.  Another sector that has faced difficulties has been the life and casualty market, where falling investment values have crippled capital levels needed to pay out for guaranteed annuities.

The industry as whole will need to reassess their risk management practices and their reputation for weathering difficult financial times has suffered over the past year.  The general employment picture isn’t helping matters and demand for insurance has declined as a result.  A number of companies have been forced to cut expenses and have had to cut their workforce.

The general focus right now is to shore up capital levels as the financial system remains fragile and is expected to be for some time.  The industry still faces a difficult time ahead and must work to limit any possible downside risks.

The U.S. insurance industry has been hit hard by the recent economic downturn and a slew of companies will need to raise capital, some of which will be forced to sell off successful business units that are attractive to prospective buyers.  The accounting firm Deloitte, released a recent report on The 2009 Insurance M&A Outlook: Opportunity in an Uncertain Environment.

The financial crisis and significant catastrophe-related losses in the third quarter of last year – combined with lower investment returns, ratings downgrades and a global economic recession – have created a “perfect storm” within the insurance M&A arena. As a result, insurance M&A buy-side activity approached an all-time low as 2008 drew to a close. The only bright spot in insurance M&A was the relative weakness of the U.S. dollar during most of the 2007-2008 period, which made U.S. insurers potentially attractive acquisition targets for foreign buyers seeking to increase their presence in the U.S. insurance market.

The Dollar isn’t going to get much stronger and with all the federal spending adding to a bloated national debt it will likely get weaker.  There’s is also a perception that most investors are shying away from the financial services industry of which insurance is included and as a result some insurance companies seem to be significantly undervalued, adding to their attractiveness.

It’s definitely a Buyer’s market out there, companies with strong capital positions and excess cash on hand will be able to pick and choose from a number of buying opportunities in the insurance industry.  The insurance industry hasn’t received the type of federal support like it’s financial services counterparts in the banking industry and segments like life insurance have been hit hard from investment losses.

There are some foreign entities with significant cash positions and they will be able to bargain hard with any insurance company desperately seeking to raise capital.  While some of these companies may be able to seek government support, there is no question there is a stigma attached to any company getting a bailout.

There is also the fact that any company receiving federal money has several constraints placed on them that may seem less favorable than being forced to sell assets at a discount.  All in all we are likely to see the pace of merger and acquisition activity increase in the coming months as more and more foreign players enter the arena.