Liberty Mutual CEO: Competitor Still Pricing Too Low
27 Outubro 2009 - 3:52PM
Dow Jones News
Commercial insurance prices are still falling, and one insurance
executive puts the blame on a competitor.
Pricing "borders on the irrational," as one big insurer "not
allowed to spend taxpayer money on compensation" is instead
"spending it on ridiculously low prices," in effect using its
taxpayer bailout to cover the costs of underpricing, said Edmund F.
Kelly, chief executive of mutual commercial insurer Liberty Mutual
Group Inc.
He didn't name the company but most likely was referring to
American International Group (AIG), which had its executive pay cut
this week as part of a compensation overview for companies that
received extraordinary government bailouts.
Kelly repeated comments that he and other insurers have made in
recent quarters--that one insurer, usually unnamed but clearly
referring to AIG, is setting insurance prices below the level
needed to cover costs and forcing prices down industry-wide in the
process.
Commercial insurance prices have been falling for more than two
years, which has also been attributed to an excess of capital in
the insurance industry and more recently to the weak economy and
shrinking U.S. businesses.
Kelly compared the commercial insurance market to a bar, where
customers stagger in and out.
The complaints of underpricing triggered an investigation into
AIG's pricing earlier this year by the U.S. Government
Accountability Office. In a preliminary report in March, the GAO
said it didn't find evidence that AIG used its government bailout
to cut insurance prices.
In a report last week, U.S. pay czar Kenneth R. Feinberg said he
cut compensation of AIG's top employees by $28.4 million under an
examination mandated for the seven companies that received large
amounts of money from the Troubled Asset relief Program, or
TARP.
According to the GAO, AIG's outstanding balance of government
assistance was $120.7 billion at the beginning of September, of
total authorized aid of $182.3 billion.
An industry survey conducted in October by UBS Investment
Research found that most risk managers surveyed put pricing by
Chartis, AIG's commercial property/casualty insurer, about in line
with competitors. An AIG spokeswoman said Chartis wasn't
unreasonably cutting its prices.
Liberty Mutual, which offers commercial and personal-lines
insurance, was in line with other insurers that reported a jump in
third-quarter earnings.
Liberty Mutual reported net third-quarter income of $265
million, nearly double the year-ago figure. In contrast to soft
commercial-insurance pricing, Kelly said the company has been
raising homeowners and auto-insurance prices. Its net written
premiums in its private-passenger auto-insurance business jumped
27.8% in the quarter to $2.58 billion from the year-ago quarter,
while workers-compensation premiums dropped 13.6% to $992 million,
signaling a weak U.S. economy.
Net written premiums for the quarter rose 10.1% to $7.21
billion.
The company's combined ratio, a measure of underwriting
profitability, worsened in the quarter. The total amount of
premiums collected that were paid out in claims and expenses,
excluding catastrophes and incurred losses from prior years, rose
three percentage points to 97.9% in the quarter from the year
earlier.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com