Carrier Perfomance

Carriers See Strong First Half

Earnings are up in P/C segments for many carriers, with high expectations for full year profits.
By: | September 5, 2014 • 4 min read

Carriers are enjoying a profitable second quarter and first half of 2014, thanks in part to fewer natural catastrophes and weather-related losses, as well as strong underwriting.

“There has been less catastrophic activity,” said Andrew Colannino, vice president at A.M. Best. “Those focused on property may have seen fewer losses.”

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“2014 will go on the books as one of the better years for the industry, barring any major catastrophe,” said Cliff Gallant, managing director of equity research for Nomura Securities. “Through the first six months of the year, we did have some tornadoes and some hail losses; it wasn’t completely quiet, but so far it’s a normal year.”

In addition to the absence of major catastrophes, “the industry is also benefitting from reserve releases from several years of good pricing and fairly benign inflation trends,” Gallant said. “There are reasons to be worried about the outlook, but at this point the industry is still enjoying some very good underwriting years.”

Gallant pointed to increased pressure on pricing – on both the insurance and reinsurance sides – and more signs of competition as possible impediments to continued growth.

“Investment yields are still pretty weak, so investment income growth will probably be weak, and some of those reserve releases might start to slow as well,” he said.
Allianz reported total revenues for the second quarter up 10 percent from the same period last year, while the operating profit was up 17 percent. Gross premiums written in property and casualty alone reached about $14.3 billion.

“In the second quarter, the segment property and casualty insurance again contributed roughly half to Allianz Group’s operating profit,” according to the company. “The impact from natural catastrophes was lower compared to the high level of the second quarter of 2013 and the underwriting result improved.”

Zurich echoed that experience. “In general insurance, business operating profit increased considerably, driven by a substantially improved net underwriting result reflecting the favorable underlying loss experience and the absence of major catastrophe and weather-related losses, especially when compared with the prior year period,” its report stated.

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“Zurich remains especially strong in the large commercial business, with a lot of the operating profit generated in North America while mature markets remained generally stable,” said Bjorn Emde, Zurich’s senior media relations manager. “We saw an improvement in the underlying profitability and in the expense ratio while profiting from a positive development in catastrophe losses compared to the prior year period.”

Zurich posted a business operating profit of $1.2 billion for the second quarter, up 32 percent from last year, with a half year operating profit of $2.6 billion, up 15 percent.

Part of its success can also be attributed to organizational streamlining, which affected 670 positions across the company.

“This will make our decision-making processes quicker and leaner,” Emde said.“Apart from making the company more agile, we also expect to generate cost savings of roughly $250 million per year by the end of 2015.”

ACE Group also saw strong performance in property and casualty lines. Global earnings from P&C net premiums increased about 8.5 percent on a constant-dollar basis, according to the company’s earnings report.

CEO Evan Greenberg said in the report, “P&C underwriting income was up 10 percent with a combined ratio of 87.5 percent. The growth in underwriting was driven by current accident year underwriting income before catastrophe losses.”
Boston-based Liberty Mutual ended the second quarter with a consolidated net income of $388 million, with $650 million in net income for the first half of the year.

Second quarter revenues were up 3 percent from last year at nearly $10 billion. Net written premiums also saw an increase of 5.2 percent at $9 billion. That improvement, however, came in spite of large catastrophe losses.

“Underwriting improvements lowered the combined ratio by a point despite sizable severe storm losses,” CEO David Long said in an earnings report. Liberty Mutual’s catastrophe losses for the second quarter were $676 million, an increase of $29 million, or 4.5 percent over the same period in 2013.

“In short, we continue to improve underwriting results and grow where we can do so profitably,” Long said.

Zurich and Allianz also reported being on track to achieve improved profit outlooks for the full year. Zurich “projects full year cash remittances in excess of $3.5 billion, ahead of 2013.” Allianz confirmed an operating profit outlook for 2014 of about $13.2 billion.

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These are just a few examples of earnings by insurers in the property and casualty segment.

Improved overall economic conditions could also be a contributing factor to higher earnings, A.M. Best’s Colannino said, but there is still variability among market leaders. Those with more focus on property are more susceptible to catastrophe losses; severe storm activity will have to remain low in order to hit full year projections.

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]