A.M. Best: P/C Companies Should Stick to What They Know

With a true hard market still several years away, property/casualty insurance companies should maintain their focus on underwriting fundamentals before trying to grow too quickly, said Matt Mosher, A.M. Best Co.'s senior vice president of global ratings.

Insurers are dealing with a number of issues that could make growth a good short-term solution, but one that could create problems in the long run, Mosher said.

"We're in an environment where there is a tepid reaction to rate increases and that has low interest rates," Mosher said. "It also is a time where merger and acquisitions can actually be dangerous because you could be buying another company's balance sheet problems."

Mosher discussed the rate environment and other issues impacting property/casualty writers earlier this week when he addressed the Property Casualty Insurance Association of America's executive round table in Scottsdale, Ariz.

Insurers should be working to retain quality employees to help their company move forward and to keep consumers coming back. "There are times when growth has to take a back seat to long-term viability and profitability," Mosher said. "If you only focus on growth, you're going to pay the price in the long run."

That said, if a company does want to pursue expanding, Mosher said growing organically is often a better way to go. But that approach takes a certain level of "expertise," he said. "The issue really depends on how successful you have been in working to generate that expertise and that expansion of the knowledge base among employees," Mosher said.

Mosher said companies should be focusing on the bottom line and not their top lines. "Companies should be looking at what areas they have expertise in, and how to expand upon those areas. When you get out of your areas of expertise, that's where the trouble begins," Mosher said.

In short, "stick to what you know," he added.

The issue of how insurers should approach investing their resources amid a soft market is one that has generated a great deal of industry discussion.

Earlier this month, Lori Dickerson Fouche, president and chief executive officer of Fireman's Fund, echoed Mosher's advice during the Property/Casualty Insurance Joint Industry Forum, saying her firm was working to "get back to basics," citing many of the reasons Mosher highlighted.

James J. Kennedy, president and CEO of Ohio Mutual Insurance Group and chairman of the National Association of Insurance Commissioners, agreed with Dickerson, saying that approach is especially true, given the large number of natural disasters that occurred during 2011.

Kennedy said the industry's combined ratio for the first nine months of 2011 was 109.9. But catastrophes are just one of the issues plaguing property/casualty writers, he said. While catastrophes added seven points to the nine-month combined ratio, excluding catastrophes, the combined ratio still rose 1.7 points from the previous year (Best's News Service, Jan. 11, 2012).

(By Jeff Jeffrey, Washington Correspondent: jeff.jeffrey@ambest.com)