There was some grumbling during the recent meeting I attended of the Society Of Insurance Financial Management about whether or not the industry is making too much, or too little money! It depends on your point of view, I suppose…or does it? Read on and tell me what you think.
One analyst at the meeting of CFOs and other insurer financial types echoed the complaint of many among the Wall Street crowd that insurance company return-on-equity (at least among property-casualty carriers) always falls below the S&P 500, making the sector an unattractive investment option.
Yet consumer advocates such as Bob Hunter decry the industry for profiteering, insisting insurers make far too much money off their policyholders and investment portfolios!
So, which is it? Underachiever or greedy SOB?
I imagine there is no “correct” answer here. No doubt p-c insurers will never produce enough ROE to satisfy investors, as by nature, insurance must invest rather cautiously–both as a writer of insurance and as a player in the equities markets–because carriers need ready access to large pools of cash in case a catastrophe strikes (and one always does) and cannot risk overexposing themselves to massive losses.
However, from a policyholder's perspective (at least those who don't have their damaged homes, cars and businesses rebuilt or replaced when disaster strikes), most no doubt think they are throwing good money after bad as they see their premiums rise after a major event such as Hurricane Katrina. They view insurance as a public utility, which therefore should be limited to single-digit profits. Anything higher is misperceived as greed.
What do you make of this?
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