MXGL Max Capital Grp. Ltd. (MM)

Property/casualty insurers danced through the raindrops last year, but 2010 could be a different story.

Even though they cut prices in 2009, profits rose sharply, helped by rising investment income, light insured catastrophes, and favorable revisions of expected losses from previous years. Those factors could turn negative and put a squeeze on profits this year.

"We can't stand prosperity," said Shivan S. Subramaniam, chairman and chief executive of FM Global, a mutual commercial insurer, in an interview regarding the insurance industry in general. "What you do is try to hold onto your client base, absorb premium reductions and try to see your way through." He said that FM Global earned 2009 gross premiums of about $4.6 billion, similar to its previous-year total.

For 2009, industry-wide net after-tax income for U.S. property/casualty insurers is expected to rise more than eight-fold to $30.6 billion from $3.8 billion in 2008, but those results came "from factors that were largely out of their control, primarily a quieter than expected year for catastrophes and a rebound in the financial markets," according to an A.M. Best report last week by Michelle Baurkot and Edward Keane.

A.M. Best's Keane said his stable outlook assumes that catastrophe losses will rise in 2010 from the year before, adding it would take a major storm season to have a big impact.

Subramaniam and others said that severe enough weather could put a dent in the market, and it could start early in the year. Traditionally, the biggest insured catastrophe losses occur in the third quarter from hurricane strikes on the U.S. coast. But in 2009, two bouts of severe weather that included tornadoes occurred early in the year, each causing more than $1 billion in insured losses, according to an estimate by risk modeler AIR Worldwide, a subsidiary of Insurance Services Office Inc. Damage from heavy winter storms, severe spring weather and flooding that triggers commercial policy coverage could get insurers off to a bad start.

Hurricanes could make a comeback, too. The 2009 Atlantic hurricane season was the quietest in more than a decade, but in December, hurricane researchers at Colorado State University forecasted an above-average 2010 Atlantic storm season with above-average probability of U.S. and Caribbean major hurricane landfall.

Last year, insurers restored capital that had been depleted in 2008, and returned some to shareholders through increased dividends and share-buyback authorizations. Buyback programs made a comeback after tumbling through the financial downturn of 2008, but the authorizations aren't actual purchases, merely board authorizations that permit purchases.

Insurers say their capital management is conservative and factors in catastrophe losses. If a major storm were to hit, buybacks can be scaled down to conserve capital.

Among insurers with active programs are Travelers Cos. (TRV), which spent $1.55 billion on share buybacks in the fourth quarter and had $6.5 billion remaining under its share repurchase authorization at the end of 2009.

In December, Chubb Corp. (CB) approved a new share repurchase of up to 25 million shares. Max Capital Group Ltd. (MXGL) increased its share repurchase plan by $100 million earlier this month.

But Fitch Ratings is still cautious on the industry. In December it reiterated its negative rating outlook for personal and commercial lines sectors of the U.S. property/casualty insurance industry in 2010. The main factors are the "lingering uncertainty" in economic and financial market conditions and a "solidly entrenched" soft pricing cycle.

Several insurers said they bucked the price-cutting trend and increased rates a bit in 2009, but MarketScout, a Dallas insurance exchange that tracks the market, said recently that composite property and casualty rates dropped in January after falling throughout 2009 in a prolonged soft market "that seems to have no end."

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com

Max Capital Grp. Ltd. (MM) (NASDAQ:MXGL)
Gráfico Histórico do Ativo
De Out 2024 até Out 2024

Max Capital Grp. Ltd. (MM) (NASDAQ:MXGL)
Gráfico Histórico do Ativo
De Out 2023 até Out 2024