The insurance industry has underpriced its policies, with “cowboys” setting unreasonable rates for coverage, Ace Ltd. Chief Executive Officer Evan Greenberg said.
Ace’s third-quarter premium revenue fell 6 percent to US$3.39 billion, the company said Wednesday. Greenberg said the Zurich- based insurer refuses to sell coverage where prices are too low.
Rates may not increase until 2011 as insurers compete for business in a shrinking market, Dave Bradford, an executive vice president at Advisen Ltd. said in a report last week. US property and casualty insurers posted the biggest sales decline in half a century in 2008 as corporations scaled back purchases. Businesses have fewer employees and facilities to cover because of the recession.
“There are some cowboys out there,” Greenberg said Thursday in a conference call when asked about casualty policies. “There are guys writing this at what we think are pretty nuts terms. It’s not completely a disciplined market.”
Ace is adding life insurance sales in nations including China and Vietnam, Greenberg said. In North America, the company’s largest market, premium revenue declined amid growing competition for liability coverage. Greenberg didn’t name the competitors that he believes are under-pricing.
Insurance executives who fail to keep their commitment to setting rates at profitable levels are like alcoholics who “keep swearing off drink until they get to next saloon,” Liberty Mutual Group Inc. CEO Edmund “Ted” Kelly said Wednesday in a conference call. “Commercial markets have strolled into the saloon and will soon be staggering out.”
‘Not a drinker’
When Greenberg was asked by an analyst about Kelly’s assessment, he said insurers have “deficiently” underwritten policies in 2008 and 2009. “The industry overall is underpricing its product,” he said.
Greenberg declined to comment further on Kelly’s metaphor.
“I’m not a drinker, so I do not frequent bars,” said Greenberg, 54. “I left that to my younger years.”
Ace management will approve price reductions only if it “is still going to earn a reasonable return,” he said. “If not, we will walk away from the business.”
Ace’s third-quarter profit rose ninefold to $494 million on fewer claims tied to catastrophes such as hurricanes, the Zurich-based insurer said late Wednesday. The insurer fell $1.36, or 2.6 percent, to $51.91 at 4:15 p.m. Thursday in New York Stock Exchange composite trading.
Source: Bloomberg
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