Insurers Earnings Becoming Less Volatile, Study Finds
NU Online News Service, June 21, 4:27 p.m. EDT?A review of more than 60 major property-casualty insurers and reinsurers has revealed that last year's corporate earnings in this sector were on average less volatile compared to 2002, while at the same time the return-on-equity improved substantially, according to a new study.[@@]
The findings were announced by the Chicago-based insurance brokerage firm Aon Corp. in a report titled, "2003 Property and Casualty Earnings Volatility Study."
According to the Aon research, the 2003 average earnings volatility for the more than 60 publicly traded companies included in the review was some 18 percent lower compared to 2002. This earnings stabilization, the report said, was made possible by solid underwriting results stemming from prior rate hikes and only marginally higher catastrophe losses.
The Aon report also released the volatility ranking for the companies it reviewed, separated into different business lines. In commercial lines, the winner, with the least volatile earnings on a year-over-year basis, was the Bermuda-based ACE Limited, with the American International Group Inc. in New York coming in second.
In personal lines, Mercury General Corp. in Los Angeles had the least volatile earnings last year, with the Nashville-based Direct General Corporation coming in second. In specialty lines, RLI Corp., Peoria, Ill., was least volatile, with United Fire & Casualty Company in Cedar Rapids, Iowa, coming in as the runner-up.
In reinsurance, Montpelier Re Holdings Ltd. of Bermuda had the least volatile earnings, followed by the Barbados-based Everest Re Group Ltd.
"Once a year we want to recognize the companies that led their respective sectors in generating the least volatile earnings," said Michael Bungert, president of Aon Re Global. Aon has been providing the volatility data in the sector for the past several years, Mr. Bungert added.
The Aon study also found that the p-c sector's overall return-on-equity has also improved noticeably in 2003.
The weighted average ROE for all of the companies in the 2003 study rose to 10.9 percent from 6.5 percent in 2002 and 3.5 percent in 2001.
Among the individual business lines, specialty lines had the best ROE, with 14.4 percent. Reinsurance was a close second, with 13.1 percent ROE. Commercial lines came in next, with the ROE of 9.7 percent, and personal lines came last with 6.5 percent. All lines, however, saw their returns improve from 2002 on a year-over-year basis.
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