Insurers record "stellar" profits in 2009

According to a news report in National Underwriter, "Panelists said the relative calm of the 2009 hurricane season, as well as some reserve releases, were seen as the key reasons p&c insurers’ net income after taxes totaled $16.2 billion during the first nine months of 2009, nearly quadruple the $4.4 billion in profits earned a year earlier."

Will we see price reductions in Florida now that insurers have banked another year's profits with no hurricanes? State Farm just negotiated a small rate increase. Looks like they aren't planning on being too generous.

The NU article continued, “One of the great untold stories of the last year is how well the insurance sector in general has done,” said Professor Scott Harrington, University of Pennsylvania’s Wharton School. I can't help wondering whether he included AIG in his assessment.

Despite the good times, the insurers keep crying. We need to see through their game and call their bluff as Insurance Commissioner Kevin McCarty did with State Farm (although later negotiations are questionable.)

Now insurers are saying that deregulation will lead to lower prices. Why should anyone believe them? Their track record is not one of truthfulness. They are exempt from anti-trust laws. If they are now making "stellar" profits, where's the fire?

Call your legislators to put a stop to these games.

Reinsurance Costs Decline

According to a report today in National Underwriter, reinsurance rates are declining rapidly. "Prices for property-catastrophe risks in the United States decreased by an average of 6 percent," said NU and, " recent adjustments to catastrophe models have decreased predicted losses for earthquake and wind perils. Taking these adjustments into consideration, rates declined by as much as 11 percent on average." 11 percent!!

Will Florida insurers pass along the savings? Can the state Cat Fund now buy more affordable reinsurance, relieving policyholder of the risk of potential assessments, should a disaster occur? These things should happen, and FCAN looks forward to pressing decision makers for these changes.

According to NU, "As we move into 2010, it’s safe to say that the property and casualty reinsurance market has weathered the global financial crisis and emerged in a relatively strong position, with abundant capital and ample capacity for most lines of business." That means there's a ton of money available to invest in risk. The capital markets are bouncing back much faster than the rest of the economy and that creates money looking for opportunities.

Looking around for investment opportunities right now, Florida wind risk doesn't look too bad compared to say, real estate. In fact, given that there were no hurricanes for three years, reinsurers have no doubt done very well in the Florida market.

This is an example of the insurance market at work. Reinsurance is essentially completely deregulated, since most of the companies are located offshore in places like Bermuda. When money flows into the markets, prices decline. What insurers in Florida do is package "risk" to resell to the reinsurers. Companies like State Farm may be large enough to handle much of the risk themselves and thereby increase their profits - a fine example of vertical integration.

We regulate our Florida insurers to make sure they pass along the savings when their costs decline. Florida has the highest insurance cost in the nation. Now it's time for the market to adjust.