Projections for insurer profits this year are looking pretty rosy, at least according to Fitch Ratings. For most property and casualty insurers, profits are up over last year at this time, losses are down, and premium growth continues to trend slightly upward as well.
As always, profits are only as solid as tomorrow’s weather forecast, and few insurance execs think they’re out of the woods yet.
The best results came from the larger diversified insurers who experienced combined ratios below the mid-nineties, a stellar result. But perhaps the best results were delivered by WC insurer Zenith National, which recorded a phenomenal 71.2% combined ratio. Zenith’s strong first half of 2006 can likely be attributed in large part to the rapidly improving WC environment in California where Zenith is a strong player. The company also benefits from CEO Stanley Zax’ obsession with underwriting discipline.
A complementary study was released by Bain and Company which indicated that the largest P&C companies returned the most value to shareholders, a result Bain interprets to imply that revenues are as, if not more, important than earnings.
Other interesting take-aways from the Bain study include their conclusion that expense management is not highly valued (even though it is all too popular, perhaps because it’s easier than growing revenue or profits). And, insurers that make a series of smaller, more focused acquisitions seem to do much better than those that go for the big ones.
Closer to home, the Best report noted that those insurers that focused on organic growth by retaining their best and most loyal customers did very well. The property insurers busily jacking rates into the stratosphere would be well served, as would their owners, if they took this finding to heart.
What does this mean for you?
The equity markets reward insurance companies that grow intelligently and at a measured pace; the present meteorological conditions will do even more to enhance the value of those insurers that preserve customer relationships and grow intelligently.
