Insurers Shouldn't Sugarcoat Tough Times

There is a phrase in journalism called “burying the lead,” meaning you fail to put the most important part of the news story right up in the first paragraph. When reporters do this, it's just poor or lazy writing. But when sources are guilty of this sin in their press releases, it's called “spin”–putting the best face on bad news. That's the case with the latest industry-wide financial results reported by ISO and PCI.

Indeed, the two groups chose to “lead” with reassurances that the industry remains in good financial shape, boasting that insurers have $437.1 billion in policyholder surplus, $554.4 billion in loss and loss adjustment expense reserves to cover claims that already were filed, and another $201.5 billion in unearned premium reserves to cover losses arising during policies in effect on March 31.

That brings the grand total available to cover losses and other contingencies to “just under $1.2 trillion.” That is impressive.

Except the big news of the day is that p&c insurers “suffered a $1.3 billion net loss after taxes and $16.4 billion in unrealized capital losses on investments,” as the groups got around to reporting in the second paragraph.

Yikes! As ISO and PCI admitted, that's a “$9.8 billion adverse swing from the industry's $8.5 billion in net income” for the same quarter a year ago–before the financial meltdown that is still wreaking havoc on our crippled economy.

The result was that the p&c industry's rate of return dropped to negative-1.2 percent in the first quarter, down from a 6.6 positive return a year ago.

ISO noted way down in its release that this was the worst first-quarter results on record.

I am actually surprised and a little disappointed that ISO and PCI did not lead with the negative news, rather than sugarcoat it by emphasizing how solvent the industry remains despite what ISO called a
“perfect storm” of adverse economic events.

I can appreciate why the industry would want to reassure the public that all is well in p&c insurance despite these horrible results. But since the industry's critics have always harped on how deep insurer pockets are–supposedly proving that carriers are somehow hoarding profits and ripping off the public–I would think the industry would jump at the chance to emphasize that times are bad, so people should not complain about the rate hikes to come as the market inevitably hardens.

Perhaps their motivation is to ward off any thoughts by Uncle Sam of including p&c insurers under the watchful eye of the systemic federal regulator being considered. If everything is fine and dandy in p&c insurance, there is no need for Washington to meddle in their business, right?

What do you folks think?