Friday, January 17, 2014
Property/Casualty Insurance Leaders say Biggert-Waters will be delayed
January 17, 2014
Leaders of the property/casualty insurance industry believe Congress will delay implementation of the Biggert-Waters (BW) 2012 NFIP reforms, according to a survey conducted by the Insurance Information Institute (I.I.I.) at its 18th annual Property/Casualty Insurance Joint Industry Forum, held in New York.
Seventy-five percent of respondents believe Congress will delay implementation. The Act was intended to help reduce the debt of the NFIP, a debt now estimated at more than $25 billion, by bringing rates charged more in line with the risk and losses in flood-prone areas.
While insurance leaders believe that Congress will act to delay BW, 93% believe the Terrorism Risk Insurance Act, which is set to expire Dec. 31, 2014, will be reauthorized by Congress.
Many executives in the property/casualty industry believe there will be a stricter regulatory environment in the year ahead. Seventy percent believe the federal government is interested in further expanding its regulatory oversight of insurers.
Broken down by lines of insurance, only 35% of respondents believe there will be an improvement in both personal auto and 45% in homeowners lines. Only 40% of respondents expect an improvement in commercial lines and 50% expect an improvement in workers compensation.
Looking at economic growth, 40% of insurance industry leaders think the U.S. economy will accelerate and 58% think it will remain the same.
“Many economic forecasts say that the U.S. and most global economies will grow stronger in 2014, and this means a greater need to protect more assets and income, which leads to greater insurance premium volume,” said Dr. Steven Weisbart, senior vice president and chief economist with the I.I.I. “Both personal lines (auto and homeowners insurance) and commercial insurance will see increased exposures. 2013 was the industry’s most profitable year since the Great Recession, and 2014 could be even better, barring major catastrophe losses.”
Thirty percent of respondents believe that premium growth will be higher in 2014; 42% believe it will remain flat; and 28% believe it will be lower. In terms of capacity, as measured by policyholders’ surplus, 73% of respondents expect it to increase; 20% believe it will remain flat; and 7% believe it will decrease.
As compared with 2013, 68% of respondents believe the combined ratio will be higher in 2014. The combined ratio is a percentage of each premium dollar a property/casualty insurer spends on claims and expenses. The combined ratio improved by 5.8 percentage points to 96.6*% in nine-months 2013 from 100.9*% in nine-months 2012. A combined ratio over 100 means that claims payments plus expenses exceeded insurance premiums.
“Combined ratios must be lower in today’s depressed investment environment to generate risk appropriate ROEs,” added Weisbart. “Lower catastrophes helped pull up ROEs in 2013,” he said.
One way to lower expenses is by consolidation; 75% of respondents expect an increase in consolidation among insurers and reinsurers in 2014.
In the area of torts, 80% of respondents believe that tort trends will remain the same in 2014; 15% believe it will deteriorate and only 5% believe it will improve.
On the investment side, 83% of industry leaders expect another “up” year in the equity markets in 2014 (but for the industry as a whole, equities constitute only about 15% to 20% of invested assets). About 70% of invested assets are in bonds.
Industry leaders were asked whether they expect interest rates to rise, fall or remain flat in 2014. Eighty percent think interest rates will rise; twenty percent think interest rates will remain flat.
The Property/Casualty Insurance Joint Industry Forum included nearly 250 representatives from property/casualty insurance and reinsurance companies and organizations. Of these, roughly 40% responded to the survey.