Thursday, June 3, 2010

"S&P Warns Property Casualty Insurers on Reserving Practices"

Playing loosey-goosey with the stuff that allows insurers and reinsurers to pay claims is not sustainable.
We've pointed out Berkshire Hathaway buying into competitors rather than using the dough to write business (completely understandable given current pricing) and others raising dividends or buying back stock.
From Insurance Journal:
Property/casualty (P/C) insurers have turned to releasing significant amounts of reserves in the past couple of years, even as the underlying business conditions have deteriorated, but may have to slow this practice, according to Standard & Poor's Ratings Services.

"We now believe that after years of large reserve releases from recent accident years, companies likely won't be able to continue at this pace," said Standard & Poor's credit analyst Siddhartha Ghosh, author of an article titled "Why U.S. Property/Casualty Insurers Might Have To Put The Brakes On Reserve Releases."

Weak economic recovery prospects, shaky consumer confidence stemming from high unemployment, and a prolonged soft underwriting cycle will make it difficult for the U.S. P/C insurance industry to sustain its historical operating profitability, the S&P analyst contends....MORE
 See also:
Hurricane Watch: As Insurers Continue to Offload Risk; Coastal Residents Seem Unaware
Another Reinsurer that would Rather Invest Their Surplus than Write Business (RNR)
"Ten catastrophe bonds close before hurricane season" (Transfer of risk 68 pct higher than same time last year)
Catastrophe Bonds Year-to-Date and Pipeline (AIG; HIG)
"Buffett: Berkshire Has Some Exposure to Large Natural Disasters" and "Buffett Says He Has 100,000 Shares of Berkshire Rival Munich Re" (BRK.A; BRK.B)