A New York Times An article this week reported concerns in Iowa and insurers pulling out of the Hawkeye State, leaving the homeowner's insurance market. The exodus was caused by dire financial consequences driven by off-the-charts weather patterns. I'll explain more about the state of the Iowa market later in the piece but it's worth starting with what makes a healthy insurance company.
Insurance Company Basics
Well-managed insurance companies have more financial strength to withstand the most devastating natural and man-made disasters. It is their job after all. They are in the business of making policyholders whole after unexpected loss events. The financial strength of insurers is a conservative investment strategy, low asset ratio, and rational risk management, with prudent selection of risks and adjusted risk ratios. The strength of the insurance is shown by the amount of insurance premiums disability in any given year usually does not exceed single digits, which amounts to less than one percent of the country's 2,651 property and casualty insurance companies. The fact that many insurers have been in business for over 200 years is a testament to their financial staying power, with declining balance sheets. The impressive historical performance of insurance, however, is under attack. Insurers are failing at a higher rate than usual, and in unexpected places. Above and beyond the unique issues that are troubling are used by the owners' insurance problem child says In Florida again Californiainsurers are failing or struggling in many states in between.
Salt of the Earth Mutuals
Most insurances companies, especially those formed as mutuals, have been around for nearly 200 years or more. Centennials, including Providence Mutual (founded 1800), Hartford (founded 1810), and [not to be confused with The Hartford] Harford Mutual (founded 1842), Vermont Mutual (founded 1828), are still going strong. The Philadelphia Contributionship has been around since Ben Franklin founded it in 1752.
A learn of mutuals insurance research firm Conning found that there are nearly 400 mutual insurance companies operating today. Most of them were built in 19th a century of immigrants from rural areas of the Northeast and Midwest who felt overcharged by big-city insurers, so they banded together to form mutual insurance companies. The joint structure meant they owned the policies, something that encouraged policyholders to have smart risk management practices, minimize losses, and put downward pressure on prices. Because mutuals are not publicly traded, they are protected from pressure from shareholders and analysts to deliver quarterly and annual profits. They are managed strategically for a long time. The joint insurance model has been successful. About half of the country's long term very efficient insurance companies were the collective entities, although mutuals account for a small portion of the total P&C industry. So mutuals have historically punched above their weight. This proud history, however, is challenged by the work of unusual losses, leaving many people to take it on the chin, and others down to count.
Most insurers are distinguished from publicly traded national insurers by having a strong connection to their community. Several of the most effective collaborations have been with regional authors, using local agency relationships and local knowledge at risk. It is noteworthy that among the insurance brokers that originated in Iowa is Celina Mutual, which was founded in Celina, Ohio, in 1914.
What Has Changed in Iowa in the Last Year?
The 2023 results for some Iowa policyholders are surprisingly poor. The 2023 loss estimates shown below for a group representing Iowa homeowners are dangerously high. The acceptable direct loss rate is 70 percent, to which 30 points of expenses are added, which gives a break-even to the combined rate of 100 percent, to which is added about 8 points of investment income, which produces a small profit. But the loss rates of this group are more than 70 percent.
| 2023 Iowa Homeowners' Insurance Direct Incurred Loss Ratio, in % | |
| Grinnell Mutual | 290 |
| Westfield | 253 |
| Celina | 217 |
| Farmers Mutual Hail | 164 |
| Midwest Family Mutual | 160 |
| State Farm | 137 |
| Hastings | 131 |
| Allstate | 106 |
Source: IS&P Capital IQ Pro
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Lousy Iowa Weather in 2023
A repeat Iowa's worst weather forecast for 2023 in The Des Moines Register it makes meeting the elements look like the difference between a trim 155-pound middleweight and a 400-pound sumo wrestler. That:
- 2023 began with a snowstorm, followed later in January by more than 10 inches of snow
- Hurricane season has begun before than before in 74 years of records, starting with two January twisters and 72 for the year, 20 more than normal, baseball sized hail
- Summer brought more storms, including derechos (straight-line winds at hurricane force) in late June.
- A heat wave hit in the summer, ushering in a year-long drought
- Four months ago, the drought it's very badand high-level rivers, which threaten the supply of water
- The year ended with record-breaking heat
Insurance Books
The number of insurers entering bankruptcy or acquisition by 2023 was close twice The 2022 standard, with 13 going into retirement in 2023, compared to eight in 2022. If the insured cannot meet its financial obligations, the insurance commissioner at the carrier's home location begins renewal process. If the insurance is irreparable, it is considered insolvent, the insurance commissioner orders liquidation and it is placed in the hands of the state insurance department as a receiver. A simple look at property and casualty insurance failures reveals the impact of extreme weather is off the charts, and shows that even the oldest insurers are not immune to the impact of extreme weather.
Cameron Mutual in Missouri, founded in 1892, was run there termination in December, 2023, after feeling the effects of the worst weather events of the year.
Wisconsin Re, which was also the insurer of several small towns and counties in Arkansas, Illinois, Iowa, Missouri, South Dakota and Wisconsin, was also formed in 1892. renewal in June. Its failure led many of its cedars to seek insurance coverage.
Arkansas-based United Home Insurance, founded in 1868, was there finished in November.
Kansas-based MutualAid eXchange (MAX) has acquired ia termination order in August. MAX, similarly organized, focused on humanitarian and faith-based risks, suffered from bad weather.
Looking Forward
The conventional wisdom that insurers are financial monoliths with unassailable balance sheets is being tested by some of the most severe and destructive weather events ever. There is no universal cure for hurricane fury. The best answer is to double down on what the most successful insurance entrepreneurs in history have done – pursuing a solid investment strategy, low asset turnover, and rational risk management, with smart risk selection and risk-adjusted measurement. Then he knocks on the wood.
Editor's Note: This blog has been updated to correct that Celina Mutual was founded in Celina, Ohio. It was wrongly said that it was founded in Iowa. We apologize for the mistake.
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