Insurers Earnings Becoming Less Volatile, Study Finds

NU Online News Service, June 21, 4:27 p.m.EDT?A review of more than 60 major property-casualtyinsurers and reinsurers has revealed that last year's corporateearnings in this sector were on average less volatile compared to2002, while at the same time the return-on-equity improvedsubstantially, according to a new study.[@@]

The findings were announced by the Chicago-based insurancebrokerage firm Aon Corp. in a report titled, "2003 Property andCasualty Earnings Volatility Study."

According to the Aon research, the 2003 average earningsvolatility for the more than 60 publicly traded companies includedin the review was some 18 percent lower compared to 2002. Thisearnings stabilization, the report said, was made possible by solidunderwriting results stemming from prior rate hikes and onlymarginally higher catastrophe losses.

The Aon report also released the volatility ranking for thecompanies it reviewed, separated into different business lines. Incommercial lines, the winner, with the least volatile earnings on ayear-over-year basis, was the Bermuda-based ACE Limited, with theAmerican International Group Inc. in New York coming in second.

In personal lines, Mercury General Corp. in Los Angeles had theleast volatile earnings last year, with the Nashville-based DirectGeneral Corporation coming in second. In specialty lines, RLICorp., Peoria, Ill., was least volatile, with United Fire &Casualty Company in Cedar Rapids, Iowa, coming in as therunner-up.

In reinsurance, Montpelier Re Holdings Ltd. of Bermuda had theleast volatile earnings, followed by the Barbados-based Everest ReGroup Ltd.

"Once a year we want to recognize the companies that led theirrespective sectors in generating the least volatile earnings," saidMichael Bungert, president of Aon Re Global. Aon has been providingthe volatility data in the sector for the past several years, Mr.Bungert added.

The Aon study also found that the p-c sector's overallreturn-on-equity has also improved noticeably in 2003.

The weighted average ROE for all of the companies in the 2003study rose to 10.9 percent from 6.5 percent in 2002 and 3.5 percentin 2001.

Among the individual business lines, specialty lines had thebest ROE, with 14.4 percent. Reinsurance was a close second, with13.1 percent ROE. Commercial lines came in next, with the ROE of9.7 percent, and personal lines came last with 6.5 percent. Alllines, however, saw their returns improve from 2002 on ayear-over-year basis.