A.M. Best: Mixed Bag Awaits P/C Market in 2012

A.M. Best expects insurers collectively to report an underwriting loss of approximately $10.4 billion during 2012, resulting in a combined ratio of 102.0, according to a new A.M. Best Special Report, Property/Casualty Review & Preview, featured in BestWeek U.S./Canada. On the plus side, the industry's net income after taxes is expected to improve by approximately 60% to $34.9 billion in 2012, the report said.

Premium volume increased for the second consecutive year in 2011 and the market is seeing an across-the-board stabilization in prices and continued rate firming in many segments, the report said, offering more glimmers of hope for the beleaguered P/C market in 2012.

In BestWeek Europe, with the advent of Solvency II, European insurers will need to increase their regulatory capital to meet stricter solvency standards, a development that prompted the launch of a company — Insurance Regulatory Capital Ltd. — that specializes in providing those insurers with subordinated debt as a capital-raising tool.

Chief Executive Oliver Tattan said IRC, launched last year, is targeting a market opening created in part by the development of tighter solvency standards for insurers in Europe.

"It's a way for midsize insurers who can't access the capital markets to put a little bit of leverage into their operations," said Tattan of the attractiveness of subordinated debt.

Also in BestWeek U.S./Canada, health insurance companies are sitting on record levels of cash reserves, which is likely to spur merger and acquisition activity into the foreseeable future. Those cash reserves are giving health insurers the cachet to invest in new products and technological systems governing medical management and third-party administration efforts.

But industry observers said while having more cash on hand can signal a company's strength, it can also put health insurers under more scrutiny as regulators look for ways to lower health insurance costs.

Sally Rosen, managing senior financial analyst at A.M. Best, said, "There is going to be more spending on businesses that will help companies to expand geographically or into product lines like Medicare, which are seen as having growth potential."

BestWeek is published by A.M. Best Co. for insurance professionals. To subscribe, visit www.ambest.com/sales/BestWeek.

Founded in 1899, A.M. Best Co. is the world’s oldest and most authoritative insurance rating and information source.

(By Rick Cornejo, managing editor, BestWeek: rick.cornejo@ambest.com)