a new york times This week’s article reported on trouble in Iowa, where insurance companies pulled their stakes from the Hawkeye State and exited the homeowners insurance market. The trigger for the withdrawal was disastrous financial results due to unexpected weather patterns. We’ll discuss the state of the Iowa market in more detail in this article, but it’s worth starting with what a healthy insurance company is.
Insurance company basics
A well-managed insurance company has sufficient financial strength to withstand the most devastating natural and man-made disasters. After all, that’s their job. They are in the business of making policyholders feel better after an unexpected loss. The foundation of an insurance company’s financial strength is a conservative investment strategy, low asset leverage, and sound risk management through prudent risk selection and risk-adjusted ratings. The durability of an insurance company is evidenced by the financial numbers of the insurance company. hindrance It typically doesn’t exceed single digits in any given year, and it’s just a fraction of 1% of the nation’s 2,651 non-life insurance policies. company. The fact that many insurance companies have been in business for more than 200 years is evidence of its financial staying power with strong balance sheets. However, the insurance industry’s impressive past performance is under attack. Insurance company failures are occurring more frequently than usual, and in unexpected places.A more unique problem plaguing a state with long-standing homeowners insurance problems florida and CaliforniaDuring that time, many states have seen insurance companies go bankrupt or withdraw their stakes.
Earth Salt Interaction
lots of insurance company, especially those framed as interactions, have been around for nearly 200 years or more. Providence Mutual (founded 1800), Hartford (founded 1810), (not to be confused with Hartford) Harford Mutual (founded 1842), Vermont Mutual (founded 1828), and many more. Centenary-year-old companies are still going strong. The Philadelphia Endowment has existed since its founding in 1752 by Ben His Franklin.
a study According to a survey of mutual insurance companies by insurance research firm Conning, there are currently nearly 400 mutual insurance companies in operation. A large band of them was formed in his 19th year.th Immigrants to rural areas in the Northeast and Midwest felt overcharged by big-city stock insurance companies, so they banded together to form mutual insurance companies. Mutual structures meant that policyholders owned the insurance company and encouraged policyholders to practice prudent risk management, minimizing losses and putting downward pressure on prices. . Because mutual funds are not publicly traded, they are not subject to pressure from shareholders or analysts to pay quarterly profits or annual dividends. These are managed strategically over the long term. The mutual insurance model was successful.Nearly half of the country has long-term best performance Insurance companies were mutuals, even though mutuals accounted for a relatively small portion of the overall property and casualty insurance industry. Therefore, mutuals have historically punched above their weight. However, this proud history has been challenged by unusual loss activity, with many mutual investors taking it on the chin and some counting down.
Most mutual insurance companies are distinguished from national publicly traded insurance companies in that they have strong ties to the local community. Some of the best-performing mutuals are single-state writers, leveraging relationships with local distributor factories and local risk knowledge. It is therefore telling that among the insurance companies leaving Iowa is Celina Mutual, which was founded in Celina, Iowa in 1914.
What changed in Iowa last year?
Some Iowa homeowners insurance companies are doing surprisingly poorly in 2023. The 2023 loss ratios shown below for a representative group of Iowa homeowners insurance companies are dangerously elevated. The acceptable direct loss ratio is 70 percent, to which 30 points of expenses are added to give a combined ratio with an underwriting break-even point of 100 percent. Add to this an investment return of about 8 points and you have a decent profit. However, the loss rate for this group is well above 70%.
| 2023 Iowa Homeowners Insurance Direct Incurred Loss Rate (%) | |
| grinnell mutual | 290 |
| westfield | 253 |
| Selina | 217 |
| Farmers Mutual Hail | 164 |
| Midwest Family Mutual | 160 |
| state farm | 137 |
| hastings | 131 |
| allstate | 106 |
sauce: S&P Capital IQ Pro
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Terrible Weather in Iowa 2023
a summary About severe weather in Iowa in 2023 des moines register This encounter with the elements looks like a mismatch between a lean 155-pound middleweight and a 400-pound wrestler. In other words:
- 2023 started with an ice storm that dumped more than 10 inches of snow in late January.
- Tornado season has begun Before More than ever in 74 years of record, Starting with two twisters in January, there have been 72 twisters this year, 20 more than normal. baseball size Hyalite
- The summer brought more storms, including derechos (hurricane force winds) in late June.
- A heat wave hit in the summer, followed by a drought the rest of the year.
- There has been a drought in the past four months; It got worserivers are at record legal stage, threatening drinking water
- The year ended with a record heat wave
Insurance obituary
The number of insurance companies entering liquidation or receivership in 2023 is Two degrees It will reach the level of 2022, and 13 companies will start liquidation in 2023, compared to 8 companies in 2022. If an insurance company is unable to meet its financial obligations, the insurance commissioner of the insurance company’s home state will initiate liquidation proceedings. rehabilitation process. If an insurance company cannot be reorganized, it is deemed insolvent, the Insurance Commissioner orders liquidation, and the insurance company is placed in receivership by the state insurance department. A quick look at some property and casualty insurance failures reveals the effects of unexpected and devastating weather, and shows that even well-established insurance companies are not immune to the effects of exceptionally severe weather. .
Founded in 1892, Missouri-based Cameron Mutual Co. liquidation December 2023, after feeling the effects of that year’s overly severe weather events.
Wisconsin Reinsurance Company, also founded in 1892, is a reinsurance company that owns dozens of small town and county mutuals in Arkansas, Illinois, Iowa, Missouri, South Dakota, and Wisconsin. . rehabilitation In June. That failure left many cedants scrambling to find reinsurance.
United Home Insurance, based in Arkansas, was founded in 1868. liquidated in November.
MutualAid eXchange (MAX) is based in Kansas. liquidation Ordered in August. MAX, organized as a mutual benefit organization focused on mutual aid ministry and faith-based risk, was hit by severe weather.
For the future
The conventional wisdom that insurance companies are monolithic financial institutions with strong balance sheets is being tested by the most severe and destructive weather event ever experienced. There is no one-size-fits-all antidote to the wrath of the storm. The best response is to double down on what the most successful insurance companies have historically done. This means pursuing conservative investment strategies, keeping asset leverage low, and practicing sound risk management through prudent risk selection and risk-adjusted ratings. Then knock on wood.
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