The property casualty insurance market continued to harden in 2009, but not quite enough to bring the glory days back to the industry. The sector also scored a major victory in a win against federal authority over the insurance industry.
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Towers Perrin releases a quarterly survey on pricing called the Commercial Lines Insurance Pricing Survey (CLIPS). The latest survey for the third quarter of 2009 shows that pricing was flat compared to the same quarter of 2008. This continues the trend away from falling prices, which dropped 6% in early 2008.
Another quarterly survey from Aon Analytics indicated a similar stabilization of pricing among many commercial insurance lines. (Learn more in Intro To Insurance: Property And Casualty Insurance.)
The industry also appeared to achieve another major goal in 2009, and has apparently defeated an attempt to create federal oversight of insurance. In early December 2009, the U.S. House Financial Services Committee passed a bill to create a Federal Insurance Office (FIO), but that office would have no regulatory authority over insurance companies, and could not override state insurance laws.
The stronger property and casualty companies benefited during 2009 from the weakened state of some of its competitors. The Chubb Corporation (NYSE:CB) said during its first quarter of 2009 earnings conference call held in April 2009 that "we are seeing a steady but not yet overwhelming flow of business opportunities being presented to Chubb as a result of the weakened financial condition of several of our competitors." (Learn more in out Stock Picking Strategies Tutorial.)
American International Group (NYSE:AIG) continued to be a ward of the government, and became a day trader's delight due to its volatility and enormous volume. It also roiled the market with accusations that it was slashing prices to get business.
Book values started to stabilize and then head up in 2009, as investment losses crested with the bounce in the market, and the stabilization in the financial system. Travelers, Inc. (NYSE:TRV) reported a book value per share of $51.24 at the end of the third quarter of 2009, up 8% sequentially and 22% year over year.
Warren Buffett, the CEO of Berkshire Hathaway, Inc (NYSE:BRK.A, BRK.B) proved once again to the dwindling number of skeptics out there that a long-term value investing strategy is the superior method, as Berkshire's large investments in Goldman Sachs (NYSE:GS) and General Electric (NYSE:GE) paid off during 2009.
The Bottom Line
The property and casualty market stabilized in 2009, and paid off with major returns to those who had the fortitude to invest while everyone else was running away.
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