A few articles in my reading pile today just seem to go together so well.
First, Insurance Journal reports on the obvious by passing along a blurb from S&P:
The U.S. commercial lines property/casualty insurance “soft” pricing cycle will likely mean outlooks on some commercial lines insurers will be revised to negative in the second half of 2008, according to Standard & Poor’s Ratings Services.
In a new article, which is titled “As U.S. Commercial Lines P/C Prices Fall Further, It’s Time For Insurers To Sink Or Swim,” Standard & Poor’s says that if price declines continue at their current pace, resulting negative outlooks on individual commercial lines insurers in the second half of 2008 could in turn lead to a negative outlook for the commercial lines sector toward the end of the year.
Maybe there’s one or two people in the insurance industry who weren’t aware that, with just a few exceptions (coastal wind, in particular), the market is softening…but for many of us this would fall in the category of “no s—t, Sherlock!”.
However, the prospect of triple-digit combineds and ratings downgrades probably has a few M&A teams waking from their boredom and starting to do the early research in anticipation of future blood running in the streets.
Why, if I’m not mistaken, a minor flesh-wound has already been announced by Progressive:
Progressive Corp.’s profit shrank 34 percent in the first quarter because of slipping premiums, the car insurer said Wednesday.
Progressive earned $239.4 million, or 35 cents per share, in the first quarter, compared with profit of $363.5 million, or 49 cents per share, in the first quarter of 2007.
Premiums shrank 4 percent to $3.49 billion from $3.65 billion.
Of each premium dollar, Progressive spent 94.6 cents administering claims, 5.1 cents on the dollar more than the first quarter last year.
That AP article, by the way, is yet another example of financial reporters needing a bit of an education in the subjects they report. The 94.6% figure is a combined ratio, not a loss ratio as the article implied.
That’s still profitable, but competition and frequency/severity trend changes have been marking an end to the salad days of personal auto insurance.
But at least there’s some hope of market hardening. The Klotzbach/Gray hurricane forecast April update has been released:
Hurricane forecasters from Colorado State University today raised the number of Atlantic storms they expect this year to 15, including eight hurricanes, half of them major.
“Current conditions in the Atlantic basin are quite favorable for an active hurricane season,” said meteorologists William Gray and Philip Klotzbach, whose predictions are closely watched by insurers, energy markets and local governments.
In December, they predicted 13 named storms this year, including seven hurricanes, three of them major.
There’s nothing like a good catastrophe to deplete excess capital in the industry, drive some nutty players back to sanity, and firm up prices a bit.