ALIRT Research – Three Weddings (and a Funeral?)
It is commonly held that the present six-year hard market pricing cycle has been a boon for U.S. commercial lines insurers. And this is certainly true, generally. But we must not forget that hard market conditions also generally arise after periods of extended soft pricing behavior and that the latter can result in substantial financial deterioration. It is, in fact, this financial deterioration that ultimately impairs insurers’ balance sheets and drives the “fear” phase of the rate cycle and hence higher rates and tighter terms and conditions.
Badger Mutual Faces Severe A.M. Best Downgrade – Regional Property/Auto Insurers Under Pressure
The worsening plight of a number of smaller regional property & casualty insurers was on full display today as A.M. Best downgraded Milwaukee-based Badger Mutual Insurance Company (BMIC) three pegs from B+ (6th highest) to C++ (9th highest). This is remarkable given that the rating agency had just lowered BMIC’s rating from A- to B+ two months before.
ALIRT Research – Fronting Insurers Update
Given the recent bombshell regarding fraudulent collateral issues at insurtech Vesttoo – a development which follows closely upon a $60 million collateral dispute write-down by Trisura in 4Q2022 – we provide below an update of ALIRT’s Fronting Company composite as of YE2022 and interim 6 Month 2023 data.
Below Investment Grade Bond Exposure for Life Insurers
Below Investment Grade (BIG) bonds consist of all bonds rated BB+/Ba1 or lower by public rating agencies. In the statutory financial statement, there are four different “Classes” of BIG bonds (and their S&P ratings):
Largest U.S. Surplus Lines Carriers Underperforming the Broader Commercial Lines Market
Last month, A.M. Best released its annual study of the U.S. surplus lines market. We thought this a perfect opportunity to review the financial quality of the largest domestic E&S insurers, per ALIRT’s quarterly credit analyses, as of the six month 2021 statutory filings.
More Trouble Ahead For U.S. Property Insurers? Heeding The Canaries In the Coalmine
ALIRT recently noted the substantial downgrade of Texas property insurer Germania Farm Mutual Insurance Association (GFMIA) followed closely by the liquidation of Kansas-based MutualAid eXchange (MAX). While we would normally not issue special commentary on two relatively obscure insurers, we feel their troubles may signal the need for greater vigilance on the part of distributors as regards their regional property insurer partners. In short, they may reflect proverbial canaries in the coalmine.
Overview of Reciprocal Insurance Exchanges and Recent Market Trends
Reciprocal Insurance Exchanges (RIE; also referred to interinsurance exchanges) have long been a part of the property & casualty (P&C) insurance industry, with roots dating back to the late nineteenth century. Many of the largest RIEs today began operations in the early decades of the last century, with the top five largest RIEs by direct written premiums founded prior to 1930.
Privately-Owned Insurers in the U.S. Life Insurance Industry
In the wake of the 2008/2009 global financial crisis, the U.S. life insurance industry underwent a spate of business sales/exits, spin-offs, and product changes in the 2010s which has continued through the 2020s. ALIRT has discussed many of the trends and factors that have contributed to this transition, and one of the most impactful developments has been the increased number of life insurance companies owned by asset managers, private investment funds, and other private investor groups. While privately-owned organizations have long been involved in the life industry (and the entire insurance industry for that matter), they have become increasingly active in acquiring life insurers in the years subsequent to the financial crisis. Some reasons for this trend include:
Cracks Starting to Show? Fallout From Collateral Issues with Vesttoo
It’s tough times for the U.S. property & casualty (P&C) Industry. Tough times for insureds who confront ever higher rates in most lines of business, for (re)insurers which are struggling to right-size pricing in the teeth of inflation and a volatile loss environment, and for regulators who, in personal lines especially, are caught between the conflicting demands of the first two. In addition, wholesale distributors vie for diminished capacity while retail producers lament market exits and spiking rates. Investors, for their part, wonder when the market will regain some sort of consistent footing.
BBB-rated Bond Exposure for Life Insurers
Life insurers significantly increased their holdings of NAIC Class 2 bonds (bonds with BBB/Baa ratings public rating agencies) in the years since the financial crisis of 2008-2009.
