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Insurance exec issues warning on industry stress levels

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Insurance exec issues warning on industry stress levels

Cracks that began to appear in the foundation of the insurance industry’s underwriting account and loss reserves in 2016’s second half will become more visible and significant this year as industry stress levels continue to rise, an insurance executive warned in his annual letter to shareholders.

“Companies that have been excessively focused on top-line growth by definition are only able to produce growth by pricing below market, and to do so requires that underwriters assume a continuation of the benign claims environment of the past 5+ years,” Weston M. Hicks, president of New York-based Allegheny Corp., said in his Wednesday letter.

He quotes Nobel Prize winner Daniel Kahneman, a psychologist, as stating, “The illusion that we understand the past fosters overconfidence in our ability to predict the future.”

Allegheny operating companies include New York-based reinsurer Transatlantic Holding Inc. and Atlanta-based RSUI Holdings Inc., a specialty wholesale insurer.

Allegheny reported that TransRe ‘s underwriting profits were $260.6 million in 2016, a 20.3% decrease from the $327 million reported in 2015.  Gross premiums written were $4.3 billion, an 18.2% increase over the $3.7 billion reported in 2015.

Net catastrophe losses and related loss adjustments expenses were $138.6 million, $107 million higher than in 2015.

The company said market conditions precluded profitable growth at RSUI, whose underwriting profits totaled $138.4 million, a 12.5% decrease from the $158.1 million reported in 2015. It reported an 81.6% combined ratio for 2016 vs. 2015’s 80.4%.