Storms, recession reduce insurance company profits

Insurance companies market themselves as calm, steady and always there when calamities strike. During the past year, they’ve had to maintain that composure while watching their profits eaten away by an extraordinary number of natural disasters and one of the century’s worst economic maelstroms.

The Midwest, where Columbia’s three largest insurance companies do most of their business, was particularly hard hit by tornadoes, hail and hurricanes that struck the Gulf Coast and spawned northbound rainstorms. The storms caused extensive damage to policyholders’ homes, cars and other property.

Insurance company earnings come from writing policies and investing capital in annuities and other financial products. The stock market meltdown had a significant effect on profits and assets at life insurance companies in particular and property and casualty companies to a degree, according to a report by the Insurance Information Institute.

“We had a significant net loss in 2008,” Columbia Insurance Group President Gary Thompson said. Columbia Insurance Group has grown through mergers and been in business for 137 years, and Thompson said 2008 “was the worst year in the history of the company.”

But the number of policies written by agents from Columbia Insurance Group, Shelter Insurance and State Farm have continued to increase, albeit slightly.

“The actual business we’re doing is increasing,” Shelter Insurance Vice President Joe Moseley said. “We do all of our business through agents. And the personal relationships agents have with their clients mean we tend not to lose too many policyholders, and that’s a good place to grow from.”

Missouri’s 35 largest property and casualty insurance companies had an increase of 1.63 percent in written premiums, totaling $8.4 billion, according to the Missouri Department of Insurance. Nationally, property and casualty insurance company premiums fell 3.6 percent in the wake of the “sharpest contraction in the economy since 1982,” the Insurance Information Institute stated.

When premium numbers take a hit like they did with nationally escalated bad weather conditions, the insurance market relies on its other method of financial growth, investments earnings, to hold business steady.

But 2008 just wasn’t the insurance market’s year, as both sides experienced pressure, which dropped net income from $62.5 billion in 2007 to just $2.4 billion in 2008, according to the Insurance Information Institute.

A spokesman for the Missouri Department of Insurance, Travis Ford, said, “Even though people are still buying insurance and will continue to buy insurance, they (the insurance companies), like everyone else, are relying on the financial markets to get a return on their investments.”

Ford added that the rebound may take a few years. “We think that the ripple effect of the last couple of years will carry on for a little while for insurance companies.”

While the financial markets were deteriorating, storm activity unrivaled in at least a half-century depleted earnings from insurance premiums.

Shelter, Columbia Insurance and State Farm paid out a larger percentage of their premiums in 2008 than in the previous few years. Tornado outbreaks totaled close to 1,700 in 2008, with more occurring from January to July than in any other season in the modern historical record, according to Risk Management Solutions. If that wasn’t enough, storms spawned from Hurricane Ike in 2008 caused $10.5 billion in insured losses as of April 2009.

Shelter Insurance anticipates 2009 turnaround

Shelter is the sixth-largest insurance group in Missouri, with a 3.5 percent share of the state’s insurance market. The company had $294.4 million in written premiums for 2008 in Missouri, an increase of 1.12 percent from the previous year. The company paid out 68 percent of its premium income in 2008, compared with 56 percent in 2007.

“Net income has been down over the last two years because of the storms we’ve seen across the 14 states (where Shelter operates),” Moseley said. “Our premium numbers continue to rise this year, making it very similar to last year.”

Moseley said if the weather stays relatively calm during the final quarter of 2009, Shelter may end up with a more profitable year.

“We have time to turn around,” Moseley said. “In the spring, we face the wind storms, and our operating territory has the highest number of tornados in the world. But if there aren’t hurricanes (in the fall), we have a chance to do much better,” Moseley said.

Moseley said Shelter’s positive reputation has kept its client base solid, particularly in this area. Columbia has the second-highest concentration of Shelter policy holders in its operating region.

“Because our home office is here and because we have so many employees, we’re more involved in this community,” Moseley said. “And with that visibility it’s easier to sell insurance here than in other locations.”

Shelter has slightly more than 1,000 employees in Columbia and about 1,600 throughout the company. Moseley said the employment numbers have remained consistent for several years.

Columbia Insurance Group expands through tough times

Columbia Insurance Group is the 29th-largest insurance group in Missouri, with a 0.56 percent share of the state’s insurance market. The Columbia-based company had $47 million in written premiums for 2008 in Missouri, an increase of 1.95 percent from the previous year. The company paid out 57.7 percent of its premium income in 2008, compared with 54 percent in 2007.

In the wake of a financial crisis, lending practices grew tighter. Two-thirds of the nation’s small businesses owners polled by the National Small Business Association in September 2008 were feeling the impact of the credit crisis. Many of them laid off workers or closed, and that had a significant impact on their insurance companies.

“We primarily sell to small business owners, and given the current economic condition, small business aren’t growing and expanding, so their insurance needs aren’t growing and expanding,” Columbia Insurance Group president Gary Thompson said. “Some of them have closed their doors and shut down, and we’ve seen that impact.”

Nevertheless, Columbia Insurance Group, which operates in 19 states, is still growing. The insurance group acquired two companies in 2008, one in Atlanta and another in Austin, bumping its employee count to 350 from 290. The employee number in Columbia is about 160 and has remained fairly steady, Thompson said.

“We’ve continued to expand, slightly,” Thompson said. “We have a good business model and a good reputation in the marketplace, so while sales have been relatively flat, we have a solid financial base.”

Columbia Insurance Group also dealt with unprecedented storm damages claimed by policy holders in 2008.

“We suffered our worst weather-related losses last year–wind storms, tornados, hail,” Thompson said. “It had a direct impact on profit.”

State Farm increases insurance payouts

State Farm is the largest insurance group in Missouri, with a 13 percent share of the state’s insurance market. The company had more than $1 billion in written premiums for 2008 in Missouri, an increase of 4.27 percent from the previous year. The company paid out 75.7 percent of its premium income in 2008, compared with 57.3 percent in 2007.

“We are still growing,” Alicia Robinson, a State Farm spokeswoman based in St. Louis, said. “People do still need insurance.”

State Farm also dealt with larger payouts because of weather-related damage.

“We had catastrophic losses with tornados, hail damage,” Robinson said. “Here, locally in Missouri, we had losses due to multiple ice storms.”

The company’s regional office in Columbia has 1,079 employees.