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How Does the Property-Casualty Industry Compare?

How Does the Property-Casualty Industry Compare?. Gary K. Ransom Fox-Pitt, Kelton. May 19, 2003. Comparing Returns on Equity & Variation in ROEs. Data Source: Standard & Poor’s Operating ROEs 63 industry classes (including property-casualty insurance) Reflects publicly traded companies

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How Does the Property-Casualty Industry Compare?

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  1. How Does the Property-Casualty Industry Compare? Gary K. Ransom Fox-Pitt, Kelton May 19, 2003

  2. Comparing Returns on Equity & Variation in ROEs • Data Source: Standard & Poor’s Operating ROEs • 63 industry classes (including property-casualty insurance) • Reflects publicly traded companies • ROE captures some, but not all, the characteristics important to investors (e.g. growth) • Data has some survivor bias ROE is a measure that can be compared across industries.

  3. 63 Industries: ROE vs. Standard Deviation of ROE (1990-2002) Property-casualty is at weaker end of the spectrum.

  4. Average Industry ROE 1990-2002 Property-casualty is at the bottom of the third quartile.

  5. Standard Deviation of ROE 1990-2002 PC has less variation than most—some smoothing of earnings?

  6. Industry Coefficient of Variation 1990-2002 On this measure, property-casualty is still in the third quartile.

  7. 50 Industries: ROE vs. Standard Deviation of ROE (1973-1990) Property-casualty was similarly weak in prior decades.

  8. Average Return on Equity 1973-1990 PC in roughly the same position. Top industries are mostly the same ones.

  9. Standard Deviation of ROE 1973-1990 Life insurance shows up near the top.

  10. ROE Coefficient of Variation 1973-2002 Again, property-casualty is in the third quartile.

  11. S&P 500 Property-Casualty Insurance Index Relative to S&P 500 Yet, property-casualty stocks only modestly underperformed the market.

  12. Final Thoughts • Property-casualty insurance is at best a mediocre business • There are many investments better than an average insurance company • One characteristic that makes the industry interesting is the wide variation in performance of individual insurers. Some are consistent outperformers.

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