Higher Insurance Premiums in 2009?

I have been forecasting a hardening of the market due to underwriting losses.  The sudden down turn of the financial markets will serve to only hasten the arrival of the hard market.

On Oct 20, Progressive announced net realized pre-tax losses in the investment portfolio of 1.36 billion dollars for the months of Aug. and Sept.  By comparison, the total value of their investment portfolio is approximately 12.7 billion dollars.  No doubt, they will experience similar losses for the month of Oct.

Progressive was quick to point out that while they have less operating capital, they continue to have all they need today to meet the regulatory requirements.  Shortly after their Aug. release, Fitch Ratings affirmed Progressive’s AA+ Insurer Financial Strength rating with a stable rating outlook.

What does all this mean?  While Progressive is still very financially sound, they will need to raise additional capital to replace the recent losses.  This can only be done one of three ways: write more business, increase premiums or lower expenses.  I will leave it to you to decide which course of action you think they will take.

While Progressive was quick to announce the results, surely there are more companies to follow with a similar story.

In addition to watching your 401K plan shrink while gas prices shoot through the roof, you should be anticipating increases in your insurance premiums in 2009.

Steve Shoultz, Priority Risk Management

Filed under: General