Industry Financials


Commercial insurance rates in the United States slipped to plus 2 percent in June 2014 from plus 3 percent in May, according to latest analysis from online insurance exchange MarketScout.

Richard Kerr, CEO of MarketScout, said:

The commercial market continues to adjust downward as a result of improved underwriting results and an abundance of capacity. In the aggregate, rates are still up slightly but the trend for rate moderation continues.”

By coverage class, umbrella, workers’ compensation, D&O, and EPLI all moderated from the prior month with each registering a plus 1 percent rate increase.

Workers’ compensation rates slipped the most from plus 3 percent in May to plus 1 percent in June.

By account size, small (up to $25,000) and medium accounts ($25,001 up to $250,000) remained at plus 3 percent. Large accounts ($250,001 to $1 million) slipped from plus 2 percent to plus 1 percent and jumbo accounts (over $1 million) were up 0 percent or flat.

Kerr noted that this is the first plus 0 percent measurement since the market turned towards rate increases in November 2011:

It’s not surprising the jumbo accounts have gone flat as the name brand account continues to allure underwriters despite the lower ROE. There is a pricing benefit to being a name brand, Fortune 1000 insurance buyer.”

By industry class, manufacturing, transportation and energy all adjusted their month-over-month rate increases downward by 1 percent.

Check out latest information from the I.I.I. on financial results and market conditions.

The more than two-year upward trajectory in rates for commercial insurance in the U.S. is in jeopardy as U.S. insurers, supported by reinsurers, catastrophe bonds and insurance linked securities are finding ample reasons to start fighting over business, according to online insurance exchange MarketScout.

Richard Kerr, CEO of MarketScout noted that the composite rate for U.S. commercial insurance remained in positive territory increasing an average of 2 percent in April 2014, but warned that rate reductions are likely by year end if the current trend continues.

If you are in the market on a daily basis, you can almost feel a change in the wind. No reasonable insurer wants rate reductions. However, everyone seems to feel they are coming.”

By line of coverage, Kerr noted that catastrophic property rates will probably hold steady in the next four months with hurricane season about to start:

If the wind doesn’t blow, get ready for a solid round of rate reductions at year-end.”

On workers’ compensation, Kerr noted that it is and always has been a tough class of business with an extremely long tail:

In the last six months, several major workers’ compensation insurers have exited the market. Many others have dramatically cut back their writings. We expect workers’ compensation insurers to hold steady with small rate increases continuing.”

In its April market analysis MarketScout noted that rates for property, business interruption, BOP, umbrella, auto, workers’ compensation, and D&O all moderated one percent.

By account size, medium accounts ($25,001 to $250,000 premium) were down from plus 3 percent to plus 2 percent. Large accounts ($1 million plus premium) adjusted from plus 3 percent to plus 1 percent.

By industry class, rates for manufacturing, contracting, and public entities all moderated one percent.

Business Insurance reports on this story here.

Online insurance exchange MarketScout reported that rates for commercial insurance in the United States were up slightly in March 2014, extending the slow but steady rate increases business owners have been paying since November 2011.

The composite rate for property and casualty coverages in the U.S. was up 3 percent in March, compared to plus 2 percent in February.

Richard Kerr, CEO of MarketScout said the ongoing rate adjustments come as insurers look to meet profit targets:

Insurers target a specific ROE. Despite improving margins, insurers are still not meeting their profit targets, thus the continued marginal increases.”

BOP, commercial auto, and workers compensation led the way with rates up 4 percent. However, as PC360 reports, both commercial auto and BOP were flat compared to February increases, while workers compensation was up 1 percent over the prior month.

By account size, any account with premium from $25,000 to $1 million paid a 3 percent increase compared to 2 percent the prior month.

By industry classification, manufacturing and energy accounts paid more than the prior month with manufacturing up to plus 4 percent and energy up plus 2 percent.

Check out I.I.I. information on financial results and market conditions.

Warren Buffett’s annual letter to Berkshire Hathaway shareholders released Saturday notes that Berkshire’s attractive insurance economics exist only because it has “some terrific managers running disciplined operations that possess strong, hard-to-replicate business models.”

As he goes on to extol the virtues of the major units, Buffett comments that Berkshire is far more conservative in avoiding risk than most large insurers.

To put this in perspective, the Oracle of Omaha notes:

For example, if the insurance industry should experience a $250 billion loss from some megacatastrophe – a loss about triple anything it has ever experienced – Berkshire as a whole would likely record a significant profit for the year because of its many streams of earnings. And we would remain awash in cash, looking for large opportunities if the catastrophe caused markets to go into shock. All other major insurers and reinsurers would meanwhile be far in the red, with some facing insolvency.”

As Artemis blog reports, being diversified and cash-rich Berkshire Hathaway’s insurance and reinsurance businesses continue to pay claims and liabilities while the insurance and reinsurance premium float builds and generates significant upside on the investment side of Buffett’s businesses.

Indeed, Berkshire’s attractive insurance economics are due in no small part to the successful growth of that premium float over the course of years.

Buffett’s letter tells us that Berkshire’s insurance operations again operated at an underwriting profit in 2013 – for the 11th consecutive year – and increased its float.

Buffett writes:

During that 11-year stretch, our float – money that doesn’t belong to us but that we can invest for Berkshire’s benefit – has grown from $41 billion to $77 billion.”

Buffett adds that further gains in float will be tough to achieve, but that if it does experience a decline in float at some future time, it will be very gradual — at the outside no more than 3 percent in any year.

Online insurance exchange MarketScout reported that the composite rate for U.S. commercial insurance increased an average of 3 percent in January 2014.

Commercial auto and workers compensation rates led the way with increases of 4 percent.

However, rates for five coverage classes – inland marine, EPLI, fiduciary, crime and surety – increased by just 1 percent.

Richard Kerr, CEO of MarketScout noted that the average rate increase in January 2014 barely matched year-end 2013 at plus 3 percent:

If we were to post rate changes by fractional increments, you would see the actual increase at 2.55 percent, so the moderation trend continues.”

Additional capacity, insurance linked securities and a more stable economic environment (despite recent stock market adjustments) are partly responsible for the moderating rate environment, according to MarketScout.

Hat tip to Business Insurance which reports here.

Check out latest information from the I.I.I. on financial and market conditions.

Online insurance exchange MarketScout reported that the composite rate for U.S. commercial insurance slipped to plus 3 percent in December 2013, down from plus 4 percent in November 2013.

Year-end 2013 closed with ample capacity, and additional capacity from new investors in the insurance market may put further downward pressure on rates in 2014, MarketScout noted.

Commercial auto was the most expensive coverage, leading the way with rates up 4 percent.

By industry, transportation and contracting risks were assessed the largest rate increases at plus 5 percent, while public entities were assessed the lowest rate increases at plus 2 percent, according to MarketScout.

By account size, small accounts (up to $25,000 premium) had the highest rate increases at plus 5 percent, while the largest accounts ($1 million plus premium) only had rate increases of plus 1 percent.

Richard Kerr, CEO of MarketScout, offered the following perspective:

If you are in favor of significant rate increases in 2014 you may be disappointed sans a catastrophic event or some sort of new tort liability issue. Investors are clamoring for decent returns in instruments not directly connected to the stock market. When this occurs, smart people come up with creative solutions to put these investor funds to work. Insurance Linked Securities (ILS) and new age reinsurance structures have opened the insurance market to many new investors and as a result, additional capacity. This added capacity may well put additional pressure on rates in 2014.”

Check out latest information from the I.I.I. on financial results and market conditions.

The property/casualty insurance industry is on track for what will assuredly be its best year in the post-crisis era, after a sharp improvement in profitability in the first nine months of 2013, according to I.I.I. president Dr. Robert Hartwig.

In his commentary on the industry’s 2013 – First Nine Month Results, Dr. Hartwig notes that the industry’s strong performance was propelled chiefly by lower catastrophe losses, favorable prior year reserve development and growth in premiums.

The effect: the industry combined ratio fell to 95.8 in the first nine months of 2013 from 100.7 in the first nine months of 2012—leading to an underwriting profit of $10.5 billion—much needed in an era of persistent, ultra-low interest rates.

As a result, the industry’s overall net income after taxes (profits) surged by 54.7 percent through the first three quarters of 2013 to $43.0 billion from $27.8 billion in the year earlier period, pushing the industry’s return on average surplus up to 9.5 percent, up from 6.5 percent in the first nine months of 2012.

Dr. Hartwig comments:

Looking ahead, there is no question that 2013 fourth-quarter performance for the property/casualty insurance industry will be far superior to 2012. This is because last year’s fourth quarter includes the impacts of Hurricane Sandy, which resulted in $18.8 billion in insured catastrophe losses. No event in the fourth quarter of 2013 comes remotely close. In addition, property/casualty insurers will benefit from a strong performance in financial markets during the final quarter of the year.”

This year’s nine-month catastrophe losses were far below the 10-year average for the first nine months of $20.0 billion, according to ISO’s PCS unit. Direct insured losses from catastrophes through the first nine months of 2013 fell by $4.5 billion to $11.7 billion from $16.2 billion in the year earlier period.

Meanwhile, net written premiums were up 4.2 percent during the nine-month period from 4.1 percent for the year earlier reading. This marked the fourteenth consecutive quarter of growth and the longest continuous period of growth in nearly a decade, Dr. Hartwig noted.

The results were released by ISO and the Property Casualty Insurers Association of America (PCIAA).

Another day, another commercial lines pricing survey. This one via Towers Watson.

Commercial insurance prices increased by 5 percent in aggregate during the third quarter of 2013, according to Towers Watson’s latest Commercial Lines Insurance Pricing Survey (CLIPS),

While this marked the 11th consecutive quarter of price increases, the gains appear to be tapering off, dropping a point since the CLIPS edition a year ago, Towers Watson said.

The survey compares carriers’ pricing on policies underwritten during the third quarter of 2013 to those underwritten in the same quarter of 2012.

Price increases by line of business were lower than those reported in the second quarter in all lines, with the exception of employment practices liability.

Employment practices liability experienced the largest price increase year over year, with price increases spiking into double digits, followed distantly by workers compensation and commercial auto.

Prices for most lines of commercial insurance showed gains in the mid-single digits, while none of the classes surveyed reported a price drop, according to Towers Watson.

A press release quotes Tom Hettinger, Towers Watson’s Property & Casualty sales and practice leader for the Americas:

This hard market is somewhat different from hard markets we have experienced before. Carriers are taking rate, which is logical, as they focus on measuring the capital required to support the business rigorously and realistically, and adjust their return expectations accordingly.”

Hettinger added that loss cost trends are benign – in fact, carriers are reporting flat loss costs.

Yet the explicit recognition of risk, whether in the form of investment yield, inflation risk or catastrophe exposure, seems to be leading to much more disciplined pricing decisions.”

Survey respondents reported that loss ratios have improved between 3 percent and 6 percent for accident-year 2013 relative to 2012 (excluding catastrophes), as earned price increases more than offset stagnant reported claim cost inflation.

For the most recent survey, data were contributed by 43 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds).

Check out I.I.I. facts and statistics on commercial lines.

Online insurance exchange MarketScout reports that the composite rate for U.S. commercial insurance held steady at plus 4 percent in November, matching the rates for October 2013.

Richard Kerr, CEO of MarketScout noted:

The market is still on an upward trajectory but rate increases are slowing.”

Kerr went on to explain that the only rate increases by coverage classification were small commercial policies (BOP) and general liability coverages, which both increased from plus 3 percent to plus 4 percent.

However, the general liability increase was possibly an adjustment from the unusually large percentage rate reduction in October, Kerr said.

Jumbo accounts (those over $1 million premium) were up from plus 2 percent to plus 3 percent. The manufacturing segment saw its rates increase from plus 4 percent to plus 5 percent.

Rates moderated by 1 percent in November for umbrella liability, auto, and crime coverages, MarketScout added.

By account size, medium accounts ($25,001 to $250,000 premium) were down from plus 5 percent to plus 4 percent.

Transportation accounts paid an average plus 4 percent in November as compared to plus 5 percent in October.

Check out latest information on financial results and market conditions from the I.I.I.

September brought a slight rate increase for U.S. companies buying property/casualty insurance, according to online insurance exchange MarketScout.

MarketScout reported that the composite rate for commercial lines rose 5 percent in September 2013, up from plus 4 percent in August.

Commercial property and general liability coverages led the way with rate increases of 6 percent, followed by commercial auto and business owners policies (BOP) with increases of 5 percent.

Meanwhile Richard Kerr, CEO of MarketScout noted that several medium sized publicly traded insurance companies are encountering challenges in their ongoing business operations:

These companies may be sold, restructured, or placed into run off unless they structure some creative solutions to get them past their current financial crisis. Very capable, smart insurance executives lead each of these firms. It just goes to show how quickly things can go wrong if an insurer experiences adverse loss development. Rates will increase if a few more companies experience similar deterioration.”

By account size, the larger accounts paid less premium than smaller accounts in September, according to MarketScout.

Small accounts (up to $25,000 premium) incurred average rate increases of 6 percent, medium accounts ($25,001 to $250,000) increases of 5 percent, while large accounts ($250,001 to $1 million) and jumbo accounts (over $1 million) saw increases of 3 percent and 2 percent respectively.

PC360 has more on this story.

Check out latest I.I.I. information on financial and market conditions.

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