Risk & Capital Management Remain Primary Focus for Rating Agencies

NU Online News Service, Sept. 21, 1:00 p.m. EST

INDIANAPOLIS—Rating agencies will have their eyes on how mutual insurers manage risk and capital through the current soft-market, two rating-agency executives say.

The two executives gave their assessment during a panel discussion here at the 116th annual meeting of the National Association of Mutual Insurance Companies.

During the discussion—which was moderated by Stu Henderson, president and chief executive officer of Western National Mutual Insurance Co.—the executives note that managing risk and capital cannot be ignored by companies, and those that do it successfully will at least experience stable ratings.

Matt Mosher, senior vice president, global rating for A.M. Best Co., says A.M. Best wants to see that a company has someone, principally a chief risk officer, who can demonstrate that the company understands its risks and is managing them in a way that is acceptable to the management team.

Mosher says there remains a lot of pressure on mutual insurers to maintain their capital base. He points to a combined ratio of 116 for the first half of this year for mutuals, underscoring the pressures carriers face.

“Early in the cycle we did not see a combined ratio of 100,” says Joe Petrelli, president of Demotech. “Now we’re waiting for the bottom of the cycle.”

Petrelli’s assessment is that, like the economy, the bounce back in the insurance market will not come all at once, but in segments based on the line of business.

While prices may need to rise, Petrelli says, there is another dynamic at play. Despite the high level of catastrophes for the first half of this year, insurers still have a lot of surplus on their books.

“The soft market needs to end, but with all that surplus, we are just not there yet,” Petrelli says.

Another soft-market driver, Mosher says, is that publicly traded insurance carriers can go to stockholders to raise money to replace capital. This, he says, is still driving prices lower as consumers continue to buy based on price.

However, he questions how much longer insurers will be able to sustain substantial losses, such as those seen year, while ignoring underwriting profitability.

Touching on international regulatory issues, Petrelli notes that under Solvency II (the European Union’s financial-modernization regulatory regime) only two countries—Bermuda and Switzerland—have received equivalency with EU mandates. That means the EU will recognize those two nations’ regulators as being on even footing with Solvency II requirements, allowing companies based there to write business in EU countries.

He says the reason the U.S. has yet to receive the same equivalency designation is because the EU is looking at a nation’s regulatory environment as a whole. However, since the United States is state-based, the EU regulators have not reached “a comfortable level” to approve equivalency.

Mosher says the EU is working on ways to achieve equivalency and accept the United States model.

“I believe that any U.S. regulator can go head to head with Bermuda or Switzerland,” says Petrelli.

Comments

Resource Center

View All »

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Get $100 in leads with $0 down!

NetQuote's detailed, real-time leads have boosted sales for thousands of successful local agents across the...

The Growing Role of Excess & Surplus Lines in Today’s...

The excess and surplus market (E&S) provides coverage when standard insurance carriers cannot or will...

Increase Sales Conversion with this Complimentary White Paper

This whitepaper will share proven techniques - used by many of the industry's top producers...

D&O Policy Definitions: Don't Overlook These Critical Terms

Unlike other forms of insurance where standard policy language prevails, with D&O policies, even seemingly...

Environmental Risk: Lessons Learned from Willy Wonka and the Chocolate...

Whether it’s a chocolate factory or an industrial wastewater treatment facility, cleanup and impacts to...

More Data, Earlier: The Value of Incorporating Data and Analytics...

Incorporating more data earlier in claims lifecycles can help you reduce severity payments by 25%*...

How Many Of Your Clients Are At Risk Of Flood?

Every home is vulnerable to flooding. Learn four compelling reasons why discussing flood insurance with...

Gauging your Business Intelligence Analytics Capabilities and the Impact of...

Big Data, Data Lakes and Data Swamps, How to gauge your company's Big Data readiness....

PropertyCasualty360 Daily eNews

Get P&C insurance news to stay ahead of the competition in one concise format - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.