A New York Times article this week reported troubles in Iowa and insurers pulling up stakes from the Hawkeye State, leaving the homeowners’ insurance market. The exits were prompted by horrendous financial results driven by off the charts weather patterns. I’ll detail more about the state of the Iowa market further in the piece but it is worth beginning with what makes a healthy insurance company
Insurance Company Fundamentals
Well-managed insurance companies have ample financial strength to withstand the most destructive natural and man-made catastrophes. It is, after all, their job. They are in business to make policyholders whole after unexpected loss events. The building blocks of insurers’ financial strength are a conservative investment strategy, low asset leverage, and sound risk management, with prudent risk selection and risk-adjusted rating. Insurers’ durability is demonstrated by the number of insurer financial impairments in any year typically not exceeding single digits, amounting to a small fraction of one percent of the country’s 2,651 property & casualty insurance companies. The fact that many insurers have been in business for over 200 years is a testament…
