Insurance Sector: Strategies for Navigating Rising Expenses

Operational Cost Management

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"Of the $500 million in run rate savings, we expect $350 million to be actioned in 2024, which is an increase of the guidance we have provided in the past, and the balance will be actioned within 2025 with a cost to achieve of $500 million." --- (AIG, earning call, 2024/Q1)

"During the three months ended March 31, 2024, the Company began collecting recoveries from NICO and as a result amortized $24 of the $209 deferred gain within benefits, losses and loss adjustment expenses in the Condensed Consolidated Statements of Operations." --- (HIG, sec filing, 2024/Q1)

"In Business Insurance, net favorable PYD of $34 million resulted from approximately $300 million of better than expected loss experience in workers' comp across a number of accident years, largely offset by about $250 million of strengthening in general liability driven by Umbrella for accident years 2021 through 2023." --- (TRV, earning call, 2024/Q2)

"Underwriting income was $89 million, the combined ratio of 93%, which improved by 15.6 points compared to prior year was driven by higher premiums earned, improved underlying loss cost trends, lower catastrophe losses and operating efficiencies." --- (ALL, earning call, 2024/Q1)

"The expense ratio for the quarter was 31.8%, down 20 basis points from the prior year quarter as reported with a $43 million reduction in general operating expenses." --- (AIG, earning call, 2024/Q1)

Technology Integration for Efficiency

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"We continue to invest in technology to improve operating efficiency and ease of doing business for our distribution partners and customers." --- (AIG, sec filing, 2024/Q1)

"more than ever with our largest partners to drive efficiency.Our investments in pace and technology were described as compelling and industry leading, and our talent strategy and succession planning was also complemented." --- (HIG, earning call, 2024/Q2)

"And then we look at how do we become more efficient by using better technology, by thinking about which games we want in which markets and which markets will we launch first and then what's the right brand and right segment for new emerging and distribution points. So I just want to put a bit of clarity around that if that's okay." --- (ALL, Investor Day, 2024/06/25)

"This capability enables our distribution partners to efficiently develop important insights into their books of business and supports their marketing efforts." --- (TRV, earning call, 2024/Q1)

"We continue to strengthen our capabilities for customer service, with an extensive suite for HR platform integration, member enrollment, process simplification and analytics." --- (HIG, earning call, 2024/Q1)

Regulatory Adaptation Strategies

Insurance companies are adapting to regulatory changes by integrating regulatory considerations into their investment and pricing strategies. AIG and HIG emphasize regulatory and legal investment limitations, while TRV and ALL focus on managing regulatory risk and evaluating regulatory elements. This approach ensures compliance and competitive positioning.

"AIG | First Quarter 2024 Form 10-Q ITEM 2 | Investments INVESTMENT STRATEGIES Investment strategies are assessed at the segment level and involve considerations that include local and general market and economic conditions, duration and cash flow management, risk appetite and volatility constraints, rating agency and regulatory capital considerations, tax, regulatory and legal investment limitations, and, as applicable, environmental, social and governance considerations." --- (AIG, sec filing, 2024/Q1)

"Investment strategies are developed based on a variety of factors including business needs, regulatory requirements and tax considerations. | Index to MD&A" --- (HIG, sec filing, 2024/Q1)

"The declines in homeowners' new business and policies in force reflect our ongoing efforts to thoughtfully deploy capacity, as we continue to manage rate adequacy, catastrophe risk, and regulatory risk." --- (TRV, earning call, 2024/Q1)

"We look at that as an opportunity. We're obviously evaluating some of the regulatory elements behind that." --- (ALL, event transcript, 2024/06/25)

"These businesses continue to focus on pricing discipline and strategies to manage the minimum guaranteed interest crediting rates offered on new sales in the context of regulatory requirements and competitive positioning." --- (AIG, sec filing, 2024/Q1)

Customer Retention and Loyalty Programs

Insurance companies are enhancing customer retention through superior market positioning, improved customer experiences, and accurate pricing (HIG). Allstate and AIG report improved retention, significantly impacting growth (ALL) and focusing on best accounts (AIG). Travelers and Progressive emphasize pricing strategies and policy life expectancy as key retention measures (TRV, PGR).

"Retention was steady, and the broader economic environment remains conducive for growth. In Small Commercial, with our unique and superior market position, industry-leading products, unmatched customer experience, and unrivaled pricing accuracy, we continue to deliver exceptional results, including strong top line growth and" --- (HIG, earning call, 2024/Q2)

"Customer retention in the Allstate brand also continued to improve, and that improvement has a significant impact on growth trends." --- (ALL, earning call, 2024/Q1)

"and conditions. Even with these strong pricing levels, retention was improved or flat in every line other than property, where some large accounts in our National Property business in particular traded away to the subscription market this quarter on terms we weren't willing to accept. As for the individual businesses, in select, renewal premium change was exceptionally high at 12.3% with the renewal rate change of 5.3%, up a point and a half from the first quarter and more than 2 points from the second quarter of last year." --- (TRV, earning call, 2024/Q2)

"We have focused on retaining our best accounts which has led to improving retention across the portfolio." --- (AIG, sec filing, 2024/Q1)

"Policy life expectancy, which is our actuarial estimate of the average length of time that a policy will remain in force before cancellation or lapse in coverage, is our primary measure of customer retention in our Personal Lines, Commercial Lines, and Property businesses." --- (PGR, sec filing, 2024/Q1)

Investment Strategies for Expense Offset

Insurance companies are offsetting rising expenses by focusing on higher reinvestment rates, increasing exposure to investment-grade securities with shorter maturities, and leveraging higher yields on variable-rate securities. These strategies are aimed at enhancing net investment income and achieving targeted returns despite fluctuating expense ratios.

"Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity (" ROE ") fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by management based on the competitive environment." --- (HIG, sec filing, 2024/Q2)

"General Insurance net investment income on an APTI basis was $762 million, an increase of 2% from the prior year quarter driven by higher reinvestment rates from fixed maturity securities and loans, partially offset by lower alternative investment returns, particularly private equity, and a reduction in assets due to the 2023 divested businesses." --- (AIG, press release, 2024/05/01)

"Core income of $585 million increased $570 million, primarily due to a higher underlying underwriting gain, higher net favorable prior year reserve development and higher net investment income, partially offset by higher catastrophe losses." --- (TRV, press release, 2024/07/19)

"We selectively increased exposure to investment-grade securities but continued to predominately focus on shorter maturities, which we viewed as having a more favorable risk/reward profile." --- (PGR, sec filing, 2024/Q1)

"Net investment income increased primarily due to the impact of reinvesting at higher interest rates, a higher level of invested assets, and a higher yield on variable-rate securities, partially offset by a lower level of income on limited partnerships and other alternative investments." --- (HIG, sec filing, 2024/Q1)

Market Competitive Positioning

Travelers is experiencing a decline in policy in-force counts, raising questions about its competitive positioning in personal auto insurance. Allstate benefits from low competition and a strong leadership position. The Hartford is actively adapting to competitive situations, while AIG notes stable market conditions despite some price competition in casualty insurance.

"And I guess, when I look at your policy for in-force count going down, both in the first and second quarter, I'm just curious if you think your competitive positioning in personal auto is consistent with what's going on in the marketplace." --- (TRV, earning call, 2024/Q2)

"And the combination of relatively speaking low competition that we have seen in the market and our leadership position should hopefully allow for that going forward." --- (ALL, Investor Day, 2024/06/25)

"We're adapting to competitive situations, competing for the business that we believe we want to obtain." --- (HIG, earning call, 2024/Q2)

"I don't think casualty get a little bit of price competition for sure. But I think the market is very stable." --- (AIG, conference, 2024/05/29)

"And what I'm focused on is your competitive positioning. If I look at the year-to-date top lines results, kind of seeing some movements that I'm surprised by." --- (TRV, earning call, 2024/Q2)

Risk Management Approaches

Insurance companies employ diverse risk management strategies, including optimizing return per unit of risk (Allstate), setting specific risk tolerances (The Hartford), utilizing financially-based underwriting (Travelers), and leveraging reinsurance to transfer risks (The Hartford). These approaches ensure robust risk mitigation and financial stability.

"We seek to optimize return per unit of risk across the enterprise. This approach to portfolio management continued to benefit results in the quarter." --- (ALL, earning call, 2024/Q1)

"| Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Among specific risk tolerances set by the Company, risk limits are set for natural catastrophes, terrorism risk and pandemic risk." --- (HIG, sec filing, 2024/Q1)

"Bond & Specialty Insurance - Bond & Specialty Insurance offers surety, fidelity, management liability, professional liability, and other property and casualty coverages and related risk management services to its customers, primarily in the United States, and certain surety and specialty insurance products in Canada, the United Kingdom and the Republic of Ireland, as well as Brazil through a joint venture, in each case utilizing various degrees of financially-based underwriting approaches." --- (TRV, press release, 2024/07/19)

"Management The Company's policies and procedures for managing these risks include disciplined underwriting protocols, exposure controls, sophisticated risk-based pricing, risk modeling, risk transfer, and capital management strategies." --- (HIG, sec filing, 2024/Q1)

"Reinsurance as a Risk Management Strategy The Company uses reinsurance to transfer certain risks to reinsurance companies based on specific geographic or risk concentrations." --- (HIG, sec filing, 2024/Q2)