NU Online News Service, July 31, 3:09 p.m. EDT
Increases in losses primarily from accident-year property exposures in 2011 that were not reported until the second quarter this year resulted in Meadowbrook Insurance Group Inc. reporting a net loss of $7.7 million for the period.
The Southfield, Mich.-based company in the specialty program management market reported net income of $9.8 million for 2011's second quarter.
A pretax increase of $28.2 million in net ultimate-loss estimates for accident year 2011 and prior accounted for 13.3 points of the second quarter's 111.1 combined ratio. The company reported a 101.4 combined ratio during the same period a year ago.
"We are disappointed to report an increase in net ultimate losses on prior year accident years and will continue to take actions to improve the profitability of our business as we strive to deliver results that are more in line with our history and expectations," says Robert S. Cubbin, president and chief executive officer, in a statement.
In a statement earlier in July, Meadowbrook said the increase in net ultimate-loss estimates had to do with recently implemented corporate and branch office claims initiatives.
The soft market and rising loss-cost trends diminished underwriting profitability in commercial automobile and general liability lines of business, the company adds.
Cubbin says Meadowbrook has been "aggressively raising rates wherever appropriate and shrinking our business in states and classes of business where we perceive a reduced opportunity to generate an underwriting profit." Even though rate increases are accelerating, Cubbin says, customer retention is higher than expected.
Second-quarter gross written premiums increased 20.4 percent to $43.4 million, due primarily to rate increases.
However, the growth was offset by reductions in lines where pricing and underwriting did not meet the company's guidelines.
Reserving in the company's commercial multi-peril/general liability line of business is unprecedented, especially in the public entity excess liability program, says Cubbin.
A number of large claims became larger in the 2012 second quarter. Meadowbrook says incurred losses may be higher in this line because claim managers have been instructed to identify large claims earlier, to "focus our investigation and defense strategy on claims with higher exposures," Cubbin says.
One place where Meadowbrook is seeing favorable underwriting results is workers' compensation. For example, the company has gotten a cumulative rate increase of 41.4% in California since 2009. The rates are exceeding loss cost trends and the business is profitable, Meadowbrook says.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.