Weiss: P-C Insurers Will Hike Premiums

The results mean policyholders, who have already felt "the sting" of rate increases, "should expect more on the horizon," said Martin D. Weiss, chairman of Weiss Ratings, Inc.

He noted that, "investment income and capital gains typically help offset losses from claims, but market declines eliminated that cushion in 2001."

Sectors that saw the largest percentage of claim increase were product liability and earthquake.

A $27 billion profit in 2000 preceded the $9 billion loss, the ratings and analysis firm located in Palm Beach Gardens, Fla. noted.

The $381 billion in claims for 2001 represented an increase of $175 billion, or 86 percent, over the $205 billion in claims reported in 2000, Weiss said.

According to Weiss, the first-ever loss for the industry reflects not only catastrophic losses from the Sept. 11 attacks, but also a general increase in claims across a majority of business lines.

The biggest line-of-business jump in claims was recorded for the products liability claims-made line, which went from $900,000 to $213.6 million, leaping more than 23,000 percent.

Stephanie Eakins a Weiss financial analyst said asbestos claims were probably responsible for most of the change.

Claim costs for products liability policies written on an occurrence basis for the period went from $971.6 million to $2.84 billion, rising 192 percent.

In the second highest category of increase, earthquake claims, leapt 409.3 percent from $171.8 million to $875 million. The jump was caused by the Seattle earthquake, Ms. Eakins said.

The firm does not make predictions, she said, but noted that a worse than usual hurricane season is predicted and Texas has been hit by severe flooding.

The homeowners line, according to Weiss saw claims go up from $21.8 billion in 2000 to $44.8 billion in 2001 for a 105 percent increase.

Medical malpractice occurrence policies, currently an area of industry malaise saw a 6.5 percent increase in claims in 2001, rising from $1.8 billion to $1.9 billion.

Not all the industry's troubles can be attributed to Sept. 11 claims, "economic malaise, the rash of corporate bankruptcies, and the market downturn have also taken their toll," Mr. Weiss pointed out.

Weiss noted that the losses, while very large, were concentrated among 905 insurers, or 34.1 percent of the 2,653 companies analyzed. Three large insurers, each suffering losses in excess of $1 billion, accounted for an unusually large 59 percent of the total $9 billion in red ink it was noted.

The three companies reporting the largest losses for the year were State Farm Mutual Auto Insurance Company $2.6 billion, General Reinsurance Corp. $1.4 billion, and State Farm Fire and Casualty Co. $1.3 billion.

Weiss said junk bond holdings by p-c insurers surged by $13.2 billion, or 92 percent, from $14.4 billion at year-end 2000 to $27.6 billion at the end of 2001. The firm found the most speculative segment of the industry's junk bond holdings–Classes 5 and 6–rose to record levels.

Holdings in Class 5 bonds, those with ratings equivalent to "triple-C," "double-C," and "C" assigned by a major bond rating agency, jumped 101 percent from $1.1 billion in 2000 to $2.3 billion in 2001. Worst of all, Class 6 bonds holdings, defined as in or near default, soared 475 percent from $317 million to $1.8 billion during the same period.

"Some companies deliberately stepped up their purchases of junk bonds, but in most cases, they simply got caught with bonds that suffered downgrades or went into default in 2001," commented Mr. Weiss. "And the junk bond default rate continues to rise in 2002."

Among the 2,653 property and casualty insurers reviewed by Weiss using year-end 2001 data, 89 were upgraded, while 325 were downgraded.

Weiss Ratings describes itself as the only major rating agency that receives no compensation from the companies it rates. The company said revenues are derived strictly from sales of its products to consumers, businesses and libraries. Weiss Ratings' Web site is www.WeissRatings.com.