Quote:
Originally Posted by Slava
This is where the games the insurers are playing become evident though; the combined ratio for a lot of these companies is still below 100%. In other words they are taking in more than it costs them to pay claims and adjudicate them.
Plus, if they are losing too much money due to one time market events (or at the very least inconsistent market events) then should we expect a huge rate decrease when the bull market gets roaring again?
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What insurance companies take in is based on lines of business, there is no money to make in auto insurance, the money they make is investments and profitable lines of business which these days is only commercial business and a bit in life insurance. Farm loss ratios are through the roof on average and HAB or home insurance is steadily increasing and starting to get concerning.
In bull markets there are huge decreases in some insurance products but not auto or home, why is that? Because costs steadily increase, they don't drop, people don't become better drivers in bull markets and house selling prices do not affect the cost to replace them if lost in a claim. In bull or soft markets most insurers are fighting over commercial insurance because it is lucrative.
Investments make up a significant portion of what insurers use to cover their bases, but paying claims isn't the only thing your money pays, it covers claims/administration or business expense/agent commissions/profit. For every dollar an insurance company typically looks for .10-.15 pure profit but making that for one line of business isn't so peachy when for another line such as auto you are paying .20-.30 on top of what is coming in because that is the reality of what many of the insurance companies are facing.
Why do you figure ING sold it's Canadian arm of insurance? Why is Aviva laying off a few hundred across the country? Because investments have dried up and insurers are scrambling to either pay claims or pay expenses to run their business because it's either one or the other.