Highlighting this type of price inadequacy as a main issue in the homeowners line, he suggested that customers are “pleased” when representatives of Warren, N.J.-based Chubb “point out the increased value of their possessions.”

At Northbrook, Ill.-based Allstate, Robert Block, a company representative, noted that for the past two years an increase in severity has been noticeable. But excluding catastrophes, frequencies tended to decline for Allstates homeowners book, he said. Earlier this year, however, claim frequencies began to move up and they continued to do so in the second quarter, he added.

Allstate will attack its homeowners problems with increased rates and by “taking a look at every aspect of the product,” including the underwriting and claims processes, he said.

At Chubb, on the claims side, Chief Financial Officer Weston Hicks highlighted a growing severity problem. Homeowners losses over $1 million “are running at about twice their historical average as a percentage of premium,” he said. “In dollars, its $50 million of higher-than-average losses on an annualized basis.”

At Seattle-based SAFECO, when President and Chief Executive Officer Mike McGavick was asked if his company, like others in the industry, had identified a “systemic” homeowners problem, he responded that troubles were traceable to individual decisions that the company made when it put the business on the books in different states.

A particular type of decision he highlighted was one in which the company would go in and offer the “broadest form and lowest rate” in every state where two forms were available–that of SAFECO and of its 1997 acquisition, American States. “As we looked at it today, we said we would like to do something different in the future,” he said.

Going forward, Mr. McGavick said that actions to solve problems in the homeowners line–for which the company reported a 112.2 combined ratio in the second-quarter, excluding the impact of catastrophes–will not only include traditional fixes such as adjusting forms and using sublimits. “We will also will be aggressively developing new models–multivariate automated underwriting models,” he said.

While SAFECO has said it will exit markets that dont quickly respond to pricing actions, “we made a decision not to exit states outright,” Mr. McGavick said. “Before we make a decision on a line, we will give it a chance to perform.”

Not all the news on SAFECOs second-quarter earnings statement was bad, but with $212.7 million in property-casualty underwriting losses overall, Mr. McGavick wasnt ready to hang his hat on the seeming improvements in SAFECOs personal auto results.

“I just plain dont want to make too much out of it,” Mr. McGavick said during the earnings conference call, referring to an “unusually good quarter” for SAFECOs largest line of business. While SAFECO has taken actions to improve its personal auto business over the past year, and while its “core combined ratio” (excluding weather and catastrophe losses) for auto came in at 100.2, “I dont want to suggest that those actions are already taking hold,” Mr. McGavick cautioned. “Its just too early to tell.”

Alain Karaoglan, equity research analyst for Deutsche Banc Alex. Brown in New York, saw second-quarter earnings growth for personal auto insurers like Progressive Corp. and Mercury General as positive signs for the industry overall.

Countering the idea that market leaders like State Farm are keeping the market competitive in an effort to garner market share, he noted that the Bloomington, Ill.-based company has taken rate increases this year. Earnings for personal auto insurers will probably continue to accelerate going forward, he predicted.

Still struggling with its personal auto business is American Financial, according to Co-President Carl Lindner III. “We got a later start than Progressive,” he said during a conference call, announcing that the Cincinnati-based companys personal lines combined ratio–including 1.2 points of storm losses–came in at 111.1 for the second quarter. Progressive, on the other hand, posted a 96.4 combined ratio in the second quarter, and Mercury General, 98.5.

“Were prepared to sacrifice auto volume as necessary,” Mr. Lindner said.

At least one analyst expressed skepticism about the second-quarter personal auto results of second-largest personal auto insurer–Allstate.

When Allstate management was “pressed” to answer the question of whether a two-point deterioration in the companys combined ratio (excluding catastrophes) “was all from the homeowners line, the answer was, No,” Michael Paisan, an analyst for The Williams Capital Group in New York, reported to National Underwriters online news service the day after Allstate announced earnings.

The natural inference is that the rest of the deterioration is coming from the standard and preferred auto lines, Mr. Paisan said, noting that Allstates nonstandard auto business has been improving.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 27, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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