Show me the data

According to an article I just read covering the World Insurance Forum in Dubai, discussing whether the financial market turmoil will impact underwriters' willingness to pay claims, Martin Sullivan, CEO of AIG,

pointed out that the recent profits reported by the insurers are not commonplace. He said that the U.S. insurance industry had only made a profit in three out of the last 30 years.

1 in 10 years? For now, I am filing this in the "how is this correct" file.

I have been in this industry for nearly 6 years and I have yet to see a real debate about claims payments except those that involve attorneys. Typically they are characterized by marketing professionals who purport to run claims departments talking about claims being their "shop window".

Q1 2008 Premiums: No broad market impact by subprime

Advisen released the results for Q1 2008 of the RIMS Benchmark Survey. See the press release here. The picture continues to be good for buyers and not helpful to broker earnings nor the long-term profit picture for insurance underwriters.

The cycle has not found bottom despite incredible financial market turmoil. My post yesterday discussed how Lloyd's is not concerned. Advisen clients I speak with are of mixed minds - those that are in the market for professional lines insurance (e.g. directors & officers, errors & omissions, crime) to financial institutions (lenders, investment banks, funds), those guys are not comfortable with what they have written and are looking forward to the influx of claims that will shake up who writes what and how this volatility will increase pricing in this space quickly.

We have to wait and see how litigation progresses - currently we are tracking 259 cases, including 62 securities class actions related to subprime and the credit crisis. The potential is for the concentric circles of loss to mount into something that has ripple effects within the markets far beyond D&O for financial institutions. See a recent post about this here.

The results have been picked up in the trade press already with an additional quote by Advisen's Dave Bradford in a story by Financial Week here.

Mr. Bradford said financial services and investment businesses, which have been
hit hard by the subprime mortgage meltdown, will see directors and officers’
liability insurance rates rise because of the increase in claims they face. But,
he added, there will be a steady decline in rates for most companies not exposed
to mortgage losses. “It wasn’t until the first quarter that underwriters pushed
through significant rates increases for financials. But it hasn’t spread beyond
that fairly narrow group.”

Lloyd's Profits up, subprime concern down

Lloyd's reported record profit of GBP3.85bn for 2007, up from GBP3.66bn in 2006 (enough to give CEO Richard Ward a 46.5% pay raise).

Despite growing fears in the market about the impending losses from subprime and other market turmoil, Lloyd's brushed off an anticipated GBP 100m in such losses as not material and "within the normal course of business".

Ward highlighted the job ahead (and perhaps why Rolf Tolle earns slightly more than Ward) as "to manage the cycle, focus on underwriting discipline and focus on underwriting for profit".

See the full story here.

In other Lloyd's news, the search for Lord Levene's successor is apparently on and the bar is set high - see a full detail of Levene's career path here (including how he, like me, roots for Chelsea).

PLUS

CEO in town week is always action-packed. Some of the highlights of movements around London:

Advisen has been added to the committee for PLUS Europe. Tom Ruggieri is on the main committee and I am on the Working Group, chaired by Tom Sheffield of Aon. PLUS has built a solid franchise for networking and learning in the Professional Lines industry and we are pleased to help them take the Europe chapter forward under the leadership of Andrew Newman of RK Carvill.

Interestingly, Tom Sheffield practiced law for a firm in Chicago in defense of insurance companies in D&O cases, and Aon has made a very shrewd move in hiring Tom to lead their Technical Practice. With his deep experience on the way the product works, Tom is a leading expert on how wordings and structure can be tailored to respond as imagined by a client.

On the subject, I loved this quote from Matthew Allen of London law firm Eversheds:

Insurance is not like a betting slip you just collect on, it's a living,
breathing organism that you have to manage with careful expertise to ensure it
responds when you need it.

Steve McGill was at the PLUS dinner, having just left as leader of XL's Professional Lines in Paris to head up a similar team for Catlin US, based in Los Angeles.

There will be another PLUS Europe Symposium in London in October 2008 dealing with the impact of the financial markets turmoil on the D&O and PI / E&O industries with Advisen leading a panel.