Insurance Sales Decline in Worst Streak Since 1930s (Update2)
By Andrew Frye
February 9, 2009
Feb. 9 (Bloomberg) -- Policy sales by U.S. property and casualty insurers probably fell for a second straight year in 2008, the first back-to-back decline since the 1930s, A.M. Best Co. said.
Rate reductions contributed to the drop along with "the current recession, the credit crisis, the housing correction, rising unemployment and higher energy prices," the Oldwick, New Jersey-based firm said today in a statement distributed by Business Wire.
Sales are under pressure as the slumping economy pushes corporate customers and individual consumers to scale back their coverage and forces insurers lower prices to win business. Travelers Cos., the second-biggest U.S. commercial carrier behind American International Group Inc., reported a 25 percent fourth-quarter profit decline as sales increased less than 1 percent. AIG hasn't yet posted fourth-quarter results.
"We're going to have less - obviously less business growth and arguably business shrinking" as corporate clients cut jobs and operations, Travelers Chief Executive Officer Jay Fishman told analysts in a conference call last month. "If previously there were five trucks in the fleet and now they sell three," customers will need less insurance, Fishman said.
Commercial insurance rates fell 6.4 percent in the three months ended Dec. 31, and have dropped every quarter since 2004, according to the Washington-based Council of Insurance Agents and Brokers.
'Struggling and Suffering'
Greg Case, the CEO of Chicago-based Aon Corp., the world's largest insurance broker, said in a Feb. 6 conference call that "we see our clients struggling and suffering" and trying to cut costs.
Insurers are also under pressure to add revenue from individuals as auto sales fall. The percent of uninsured drivers may reach a record in 2010 as unemployment increases, according to a report last month from the Insurance Research Council, the Malvern, Pennsylvania-based provider of industry data.
"Future profitability depends on strict adherence to underwriting and reserving discipline," A.M. Best said in the statement.
Allstate Corp., the largest publicly traded U.S. auto and home insurer, kept 3.6 cents of ever dollar collected in premiums at its property-casualty units in the fourth quarter, compared with 4.1 cents in the same period a year earlier.
The Standard and Poor's Property & Casualty Insurance Index has declined by about 17 percent this year after falling 31 percent in 2008.
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