Jordan Feldman’s Post

An interesting bit of insurance history from Coverager: "Ebenezer Hazard could be seen as the insurance world's Eli Copter: his first name means "stone of help" in Hebrew, and his last name—well, you get the idea. Hazard stumbled into insurance in the late 18th century, much like many of us do—unexpectedly. After graduating from what is now Princeton University, he became Postmaster General in the 1780s, streamlining the postal system. But he stirred controversy by replacing stagecoaches with faster, cheaper post riders, disrupting news distribution during pivotal Constitutional debates. George Washington dismissed him over this. Hazard then co-founded the Insurance Company of North America (INA) in 1792 (incorporated in 1794), the first US company to insure both buildings and their contents. INA was a powerhouse. At its peak, the company kept operational expenses below 25% of its premium income—well below the industry average of over 40%. This efficiency allowed it to retain more profit and invest strategically, making it one of the most financially stable insurance firms of its time. Yesterday's INA evolved into today's Chubb through a series of acquisitions. After struggling to compete with direct writers despite diversifying into life and workers' compensation insurance, INA merged with Connecticut General Life in 1982 to form CIGNA. In 1999, ACE acquired CIGNA's P&C operations, including INA. Finally, in 2016, ACE acquired Chubb and rebranded under the Chubb name, transforming INA into part of a global insurance leader through strategic mergers and acquisitions."

Newsom Executive Order To Fix State’s Insurance Crisis Released California’s all-of-the-above strategy is addressing this decades-old crisis to get people the reliable and affordable insurance they need. Modernizing the FAIR plan is a crucial step in the strategy to stabilize California’s insurance market. The changes increase the current limit of $20 million in commercial property insurance per location to $20 million per structure, with a cap of $100 million for a location. This is beneficial for homeowners, condo associations, farms, builders, and other businesses with multiple buildings in the same spot. The second big change could lead to higher bills for ratepayers. Currently, if the FAIR plan’s funds are depleted due to a massive event like a wildfire, the plan can place an assessment on insurance companies, who would then have to pay the FAIR plan. Under the agreement revealed Friday, insurance companies could recoup those fees if specific criteria are met. If the FAIR plan levies up to $1 billion in assessments on insurers in a calendar year, they can ask the insurance commissioner for approval to place temporary fees on their policyholders and recoup up to 50% of their assessment. If the assessment levied by the FAIR plan is over $1 billion, insurance companies can recoup 100%.

AM Best Upgrades Credit Ratings of Skyward Specialty Insurance Group’s Members. AM Best has upgraded the Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) to “a” (Excellent) from “a-” (Excellent) of Great Midwest Insurance Co. (GMIC), Houston Specialty Insurance Company, Oklahoma Specialty Insurance Company and Imperium Insurance Company (IIC). All companies are members of Skyward Specialty Insurance Group (Skyward), whose ultimate parent is Skyward Specialty Insurance Group, Inc. (Skyward Group), [NASDAQ: SKWD], and are headquartered in #Houston, TX. The outlook of these Credit Ratings (ratings) has been revised to stable from positive. In addition, AM Best has assigned a Long-Term ICR of “bbb” (Good) to Skyward Group. Also, AM Best assigned a Long-Term Issue Credit Rating of “bbb-” (Good) to the $20,000, 7.25% subordinated notes, due 2039, issued by Skyward Group. The outlook assigned to this rating is stable. The ratings reflect Skyward’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The rating upgrades are driven by the group’s operating performance, which is reflective of a sustained trend of improving underwriting results since 2020 following a change in executive leadership, as well as consistent investment income. Several years ago, following a past period of underwriting volatility, management began to institute numerous initiatives to refine its underwriting focus and risk selections and capitalize on their expertise in many segments as a specialty lines writer. Positive trends in underwriting profitability have been noted since that time in its targeted niches. AM Best will continue to monitor trends in premium growth, underwriting performance and overall operating results. Skyward’s management has also instituted numerous capital initiatives in recent years, which included a loss portfolio transfer intended to minimize the impact of discontinued lines. The group has also benefited from numerous parental capital contributions to support its operations. The assignment of the Long-Term ICR to Skyward Group follows its successful IPO. Financial leverage and interest coverage ratios at this holding company remain within AM Best’s expectations, with additional capacity to access the capital markets if needed. https://lnkd.in/eqAV4Zta

While insurance serves as a crucial financial safety net for many, there are compelling arguments against its effectiveness in certain contexts: Moral Hazard: Insurance can create a moral hazard problem where individuals take on riskier behavior knowing they are covered. For example, car insurance might incentivize reckless driving since the driver knows they won't bear the full financial burden of an accident. Adverse Selection: Insurance relies on pooling risks among a large group of people. However, adverse selection occurs when those most likely to make claims are the ones who seek insurance, leading to higher premiums for everyone else and potentially making insurance unaffordable for some. Administrative Costs: Insurance companies incur significant administrative costs, including marketing, underwriting, and claims processing. These costs can eat into premiums paid by policyholders, reducing the overall efficiency of insurance. Limited Coverage: Insurance policies often come with exclusions and limitations, leaving policyholders vulnerable to risks they assumed they were protected against. This can lead to frustration and financial hardship when claims are denied. Profit Motive: Insurance companies are profit-driven entities, meaning their primary goal is to maximize shareholder returns. This can sometimes conflict with the interests of policyholders, leading to disputes over claim settlements and coverage. Systemic Risks: Insurance may not adequately protect against systemic risks, such as economic downturns or natural disasters affecting large regions. In such cases, insurance companies may struggle to meet their obligations, leaving policyholders without the expected coverage. Complexity and Confusion: Insurance policies are often complex documents filled with legal jargon, making it difficult for consumers to understand what is covered and what isn't. This complexity can lead to misunderstandings and disputes between policyholders and insurers. Inefficiency in Risk Management: While insurance can help mitigate the financial impact of risks, it may not necessarily incentivize individuals or businesses to invest in risk management and prevention measures. This can perpetuate the cycle of risk and reliance on insurance rather than addressing root causes. While insurance undoubtedly provides valuable protection for many individuals and businesses, these arguments highlight some of its limitations and challenges in effectively managing risk and providing financial security.

According to a recent study, the global property and casualty insurance market is expected to experience significant growth in the coming years. The study projects that the market will increase from $700 billion in 2023 to $1036.17 billion by 2033. This growth is largely attributed to the impact of climate change on the insurance industry. As the frequency and severity of natural disasters increase, the demand for property and casualty insurance is expected to rise accordingly. People are getting more aggressive in seeking coverage to offset risk in all facets of their life and they have more tools at their disposal to research and understand what's available in the marketplace.

More tough news for California Insurance customers. State Farm has always been there for their neighbors and we hope they are back to their strong financial capabilities sooner rather than later. AM Best has downgraded its Financial Strength Rating (FSR) and Long-Term Issuer Credit Rating (Long-Term ICR) for State Farm General Insurance Company. The ratings agency announced that it has lowered State Farm General’s FSR from A (excellent) to B (fair) and its Long-Term ICR from “a” (excellent) to “bb+” (fair). The rating agency has also revised its outlook for the insurer’s FSR from stable to negative. AM Best’s outlook for State Farm General’s Long-Term ICR is also negative. The revised ratings “reflect State Farm General’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM),” the ratings agency said. “The continuation of the negative outlook on the Long-Term ICR reflects the uncertainty of the company’s ability to stabilize and strengthen its risk-adjusted capitalization given ongoing challenges regarding profitability and internal capital generation, trending adverse reserve development occurring on prior accident years, and the challenging regulatory environment within California’s marketplace that have constrained the ability of State Farm General (as well as industry peers” to increase premium rates in a timely fashion,” AM Best said. “While management is taking corrective actions to stabilize its balance sheet strength, these actions will need time to gain positive traction over the intermediate term.” State Farm General recently announced its intention to pull out of 72,000 California insurance policies, a decision driven by factors including inflation, the increasing frequency of natural disasters, and regulatory burdens.

State insurance regulators monitor homeowners property insurance markets as part of their mission to protect consumers, hold insurers accountable, and ensure fair, competitive, and healthy insurance markets. Under their regulatory authority, state Departments of Insurance routinely collect data from insurance companies to better understand market dynamics. Today, state insurance regulators have united to issue a comprehensive, multi-state data call coordinated by the NAIC to collect and analyze data covering more than 80% of the U.S. property insurance market by premium volume. "The PCMI data call represents the collaborative, nonpartisan work that state insurance regulators have undertaken through the NAIC to address the critical challenge of the affordability and availability of homeowners' insurance and the financial health of insurance companies," said NAIC President and Connecticut Insurance Department Commissioner Andrew N. Mais. "We as state insurance regulators are the experts in our individual insurance markets. We are on the front lines every day helping consumers navigate interactions with insurance carriers, and we have the regulatory authority to make sure that insurers make good on their promises," Mais said. "That is why we are taking the lead in issuing this data call to collect critical information from the insurance sector." Said Alan McClain, Commissioner of the Arkansas Insurance Department and chair of the NAIC Property and Casualty Committee, "The Property & Casualty Market Intelligence Data Call will provide a more holistic view of the property insurance market within our individual states and across the nation. Many individual states already collect ZIP-code-level data on property markets, but not all states gather granular data on how this translates to availability and affordability of coverage for consumers in some areas. The data call intends to address this insight gap." Read more: https://ow.ly/N7XW50QOPek

Friends, I hope you had a wonderful weekend! I took a moment to look at the news earlier and saw the headline cross my iPhone, "Insurance brokerage Marsh McLennan strikes $7.75 bln deal for McGriff Insurance Services." Congrats to my friends at both organizations. The trend towards insurance consolidation continues. I think alot about our industry structure and the incentives that are pervasive. A differentiating attribute of Valhalla Business Advisors, LLC is our approach to to simple question, "who do you work for?" Stuart Bretz has been known to say that, when you ask this question, a good place to start is following up by asking, "who pays you?" In the insurance industry, especially related to an area known as "contingent/supplemental compensation," the answer to that question can be blurry. I encourage customers of benefit consulting firms and insurance brokers to think about this and review the disclosures of the firms representing them. I want my personal and business advisors aligned with my interests; Don't you? Let me know if you are curious to discuss this further. I would love to share some research and thoughts with you. Until then, though, I hope you have a wonderful week! Best regards, Jens Thorsen 4:53pm on September 30, 2024 State College, Pennsylvania P.S. One reason Valhalla is uniquely informed about the influences of these forces on the business and the variation in the ways firms might answer the question, "who do you work for" is related to our many years of experience leading retail, wholesale, and insurer teams. Literally, the answers can vary across these dimensions and the "so what" can be important to the customer! A photo from the "old days" is included below. https://lnkd.in/ejfRnvmc Stuart Bretz Tim Carroll Mark Molckovsky, MD, MBA Tammy Gentzel Terri Bretz Willie B. Alice Tam Katherine Lambert Cherie Obiri Robert Pfahl Renae Eckley Susan Kramer Rich Wilber Dale Miller, CEBS, CMS, RPA Tom McKee Mark Johnson Anthony DiNallo ARM Bonnie Breon

Are we seeing the end of the commercial insurance bloodbath? In Jay Parsons' latest newsletter recapping REIT earnings calls, I noticed a small nugget of information a few scrolls down the page - that American Homes 4 Rent (AMH) reported some relief in the otherwise recently dismal insurance landscape. The CFO's comments are below, but, I can affirm from my seat, we just renewed two policies on Convolo Capital assets. Unsure what to expect, as last year all our renewals were double digit YoY increases. I even fielded calls from other operators asking if their +25% rate hikes were 'in line' with what we were experiencing! Last year was insane. This year's results: 1x +5.3% YoY hike, and 1x DECREASE in annual premium. Thank goodness 🤲 44 Unit, Athens, GA 2022 -> 2023 +14.2% 2023 -> 2024 -2.5% 'AMH also noted improvements in property insurance premiums. This has been a major theme for apartment operators, but we've seen more mixed news for SFR of late -- so it's a positive sign that AMH sees progress.' "One as I'm sure you've heard from elsewhere the insurance landscape overall has been improving this year, which is great from an insurance and broader industry perspective" - Chris Lau, CFO @ AMH

Big example of insurance disparity in this market... In our current acquisition in Texas, we had two different insurance brokers survey the property. One came up with $1,450 per unit. Another? $1,000 per unit. 🤯 $20,000+ difference in annual cash flow. Would have resulted in $350K in less proceeds from a lender. Why does this happen? Not all brokers have access to the same carriers. Some can’t even hit certain markets or deals that don’t align with their best carrier. Many carriers are finding ways to be "out" on deals. Most insurance brokers are encouraging clients to look at multiple options given the complexity in the industry. Here's a couple of tips: 💡 Look at your deductibles, evaluate risk tolerances. 💡Ask for potentially different carriers across Property, G/L, and Umbrella. 💡 Two Insurance brokers is plenty. Three and there will be too much crossover. During recent renewals in our portfolio, there were wide disparities between premiums for carriers. Ultimately, we ended up with good options, but it's because we used multiple to hunt for good options: 👉 One property faced a +5.3% YoY hike. 👉 Another saw a slight decrease in annual premium. Bottom line.. insurance industry is improving but a lot of hard work and effort is needed to keep these costs in check!