US P/C Writers With Best Combined Ratios Got Help From Mother Nature

Commercial insurer FM Global Group, which had the lowest combined ratio of the top 25 U.S. property/casualty writers in 2009, enjoyed a year with little catastrophe activity.

Johnston, R.I.-based FM Global, ranked 23 overall by net premiums written, had a combined ratio before policyholder dividends of 67.1 according to a recent statistical study by A.M. Best.

"It was a very low natural hazards year," said Jon Hall, executive vice president of FM Global. "There were not a lot of major earthquakes, floods, and hurricanes, but, when those events did happen, and likewise with fires and other things, our clients were better prepared."

Hall said FM Global, which has a current Best's Financial Strength Rating of A+ (Superior), tends to have good combined ratios on a consistent basis, with its three-year and five-year combined ratios around 80.

For 2010, the company's combined ratio is expected to be "more in line" with its three-year and five-year numbers because of natural hazard events, including earthquakes in Chile, New Zealand, and Haiti, and major flooding in Tennessee.

No. 10 overall on the list, USAA Group, which has a Best's Financial Strength Rating of A++ (Superior) and a combined ratio of 87.8 in 2009, enjoys one of the lowest expense ratios in the industry, said Manny Rios, senior vice president for P&C underwriting at USAA.

"That's one of the primary reasons that we had such a very strong 2009," Rios said. He also credited a mild hurricane season. He said for this year, USAA's combined ratio is shaping up to be "very similar" to 2009.

The top 25 U.S. P/C writers, ranked by net premiums written, had a stronger combined ratio compared with the industry as a whole in 2009, the study said. The top 25 writers had a combined ratio before policyholder dividends of 98.8, while the combined ratio for the total U.S. P/C industry was 100.6.

Companies in the top 25 with combined ratios before policyholder dividends above 100 included CNA Insurance Cos., at 108.9; American International Group Inc., at 110.1; State Farm Group, at 107.3; and Nationwide, at 104.3.

"We're able to still make a profit if investment income is greater than underwriting losses," State Farm spokesman Dick Luedke said, adding that State Farm had a pretax operating profit of $400 million last year. As a mutual company, Luedke said State Farm need not worry about the short-term interest of investors, but focuses on the long term and what is in the best interests of its customers.

State Farm Group topped the list of U.S. P/C writers and has a Best's Financial Strength Rating of A++ (Superior).

CNA Insurance, ranked 13th overall and which has an A.M. Best Financial Strength Rating of A (Excellent), noted the study includes the results for the company's long-term care business, which is currently in run-off.

"Excluding the impact of the long-term care business, the CNA combined ratio improves roughly 6.5 points," spokeswoman Katrina Parker said in an e-mail.

Michael Leach, senior vice president and chief financial officer for property/casualty at Nationwide, said there were several factors contributing to the company's 2009 combined ratio, including non-hurricane weather losses that "hit us harder than most competitors," and Nationwide's continued investment in its direct business and customer information analysis.

Nationwide Group</org>, in seventh place overall among P/C writers and which has a Best's Financial Strength Rating of A+ (Superior), expects its combined ratio to fall below 100 in 2010, Leach said.

He added all P/C insurers continue to work in a soft market, and the economy continues to affect personal lines, as consumers continue to comparison shop.

Hall of FM Global also noted the market remains soft.

"Rates are very competitive and are trending not drastically down, but trending lower," he said.

To hear the full interview with Jon Hall, visit http://www.ambest.com/media/media.asp?RC=180136

To hear the full interview with Manny Rios, visit http://www.ambest.com/media/media.asp?RC=180206

(By Diana Rosenberg, senior associate editor, BestWeek)