Quality of recently written premiums

[orion]

Right now I want to broaden my circle of competence a little bit and learn more about insurance companies. After understanding the basic principles, I´m still curious about one thing:

 

Is there a way to examine (or at least some hints, heuristics) the quality of recently written premiums or is this just a black box and the only way to judge this is to wait and look at the results in future years?

[twacowfca]

Right now I want to broaden my circle of competence a little bit and learn more about insurance companies. After understanding the basic principles, I´m still curious about one thing:

 

Is there a way to examine (or at least some hints, heuristics) the quality of recently written premiums or is this just a black box and the only way to judge this is to wait and look at the results in future years?

 

Property is less of a black box than casualty because claims develop relatively quickly, within about 18 months or so for Bermuda and Lloyd's companies from the time the claim was incurred until paid, on average.  Property claims are paid faster usually by primary insurers.  Claims from super castrophes take longer to develop fully than ordinary property claims and are subject to loss creep.

 

Property rates have increased in recent months.  This augurs well for profits as claims develop in the future.

 

 

Casualty is it's own can of worms, even for those with much experience in claims estimation.  Premiums paid for casualty policies may prove to be woefully inadequate if inflation pushes up the cost of future claims as some types of casualty claims may take many years to develop and be paid.

 

[giofranchi]

Is there a way to examine (or at least some hints, heuristics) the quality of recently written premiums or is this just a black box and the only way to judge this is to wait and look at the results in future years?

 

My advice would be to concentrate much more on the quality of management. If you can identify high quality management, usually the quality of written premiums follows suit.

 

giofranchi

[onyx1]

Right now I want to broaden my circle of competence a little bit and learn more about insurance companies. After understanding the basic principles, I´m still curious about one thing:

 

Is there a way to examine (or at least some hints, heuristics) the quality of recently written premiums or is this just a black box and the only way to judge this is to wait and look at the results in future years?

 

Property rates have increased in recent months.  This augurs well for profits as claims develop in the future.

 

Yes, and rates are increasing at an increasing rate.  Travelers reported this week a 7.7% increase (with higher retention) in Business lines through August for the 3rd quarter, on top of the 2.3% increase one year ago. See page 14,

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTUyNjc3fENoaWxkSUQ9LTF8VHlwZT0z&t=1

 

Also Berkley expects rate increases in the 8-10% range by the end of the year, and Selective reported 6.6% increase in July.

 

The interesting development will be whether the industry can continue to fight low investment yields with sustained "rate-on-rate" increases.  For example, Traveler's Q4 2011 rates jumped to 6% from Q3 2011's 2.3%.  Will they (and the rest of the industry) be able to tack on additional high single digit rate increases on top the 6%?  I hope so!  The industry needs about 2.6 points of improved CR for each 100bp decrease in investment yields.

[orion]

Thank you for all the comments.

 

I just found a good PDF (Analysis and Valuation of Insurance Companies) which is quite long and will keep me busy the next few days. Maybe someone will find this useful too.

http://www.columbia.edu/~dn75/Analysis%20and%20Valuation%20of%20Insurance%20Companies%20-%20Final.pdf