Improved market conditions: MSA/Baron Report

The last year of industry result deterioration is finally starting to level off, according to the latest MSA/Baron Outlook Report, but Joel Baker, president and CEO of MSA Research warns that “keen focus has to be kept on underwriting activities.”Based on six-month 2009 data, the break-even undiscounted combined ratio was just slightly under 100%. (These numbers excluded a few heavyweight Quebec writers that only file semi-annually, and include leading subsidiaries of the Desjardins group and La Capitale’s Quebec operations).

The bad news, according to report author Joel Baker, is that “underwriting results are showing no sign of a turnaround at this point.”

The good news is that financial results are showing improvement as a result of a robust recovery of mark-to-market returns captured in “other comprehensive income” due to market improved market conditions and portfolio repositioning.

Baker writes, “In fact, comprehensive income has almost doubled since the miserable depths reached last year.” He also cautioned the industry stating that “Continued appreciation of fair values is unlikely to remain as dramatic going forward.”

According to the MSA/Baron Outlook Report, released in October, direct written premiums rose a meager 1.7% compared to the same period in 2008. “This is an indication that any hardening personal lines auto and property were offset by mushy commercial pricing and depressed volumes resulting from recessionary conditions.”

Net premiums rose 5.1% mainly as a result of lower net outflows to reinsurers.

Also, investment income declined more than 20% over the same period last year. Baker explained that this reduction reflects the very low yields companies are harvesting from fixed income instruments.

Originally published on CITopBroker.com on November 25, 2009