Industry Financials


What a difference a year makes. Towers Watson’s most recent Commercial Lines Insurance Pricing Survey (CLIPS) shows that commercial insurance prices rose again by 3 percent in aggregate during the third quarter of 2014, drawing a line after five consecutive quarters of moderating price increases.

The chart below compares the change in price level reported by carriers on policies underwritten during the third quarter of 2014 to those charged for the same coverage during the third quarter of 2013.

Towers-Watson-CLIPS-Chart-Third-Quarter-2014

Towers Watson noted:

Price changes reported by carriers mark a pause in the moderation of price increases observed in the prior five consecutive quarters, following increases of between 6 percent and 7 percent, as reported in the second half of 2012 and first half of 2013.”

Price increases were fairly similar to those reported one quarter ago for most lines, but continued moderation in workers compensation and some specialty lines was offset by flat pricing in property.

The employment practice liability line, followed by commercial auto reported the largest price increases, Towers Watson said. Price increases for most lines fell in the low single digits.

Commercial property data indicated no rate change following a slight price decrease one quarter ago. When comparing account sizes, price increases were more moderate for large and specialty accounts than small and mid-market accounts, Towers Watson added.

Insurance Journal has more on this story here.

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).

 

 

While low interest rates are likely to continue to present a challenge well into 2015, a stronger economy presents the property/casualty insurance industry’s best opportunity for growth, according to I.I.I. president Dr. Robert Hartwig.

Dr. Hartwig shared his thoughts on the industry’s growth outlook in his Commentary on 2014 First Half Results.

There are two principal drivers of premium growth in the P/C insurance industry he noted: exposure growth and rate activity.

Exposure growth—basically an increase in the number and/or value of insurable interests (such as property and liability risks)—is being fueled primarily by economic growth and development.

Although the nation’s real (inflation-adjusted) GDP in the first quarter of 2014 actually declined at an annual rate of -2.1 percent, economic growth snapped back in the second quarter, as real GDP surged by 4.6 percent.

Dr. Hartwig says:

Growth in key areas of the economy such as new vehicle sales, multi-unit residential construction, and consistent employment and payroll growth are clearly benefitting the P/C insurance industry. For the remainder of 2014 and into 2015, the consensus forecasts call for real GDP growth to hold steady at about 3 percent.”

The other important determinant in industry growth is rate activity. Rates tend to be driven by trends in claims costs, conditions in the reinsurance market, marketing and distribution costs, and investments in technology, among other factors.

Although it’s challenging to foresee the interplay of all of these and macroeconomic factors, Dr. Hartwig says it is certainly possible that overall industry growth in net written premiums could keep pace with overall economic growth in 2014.

In the first half of 2014 the industry’s net written premium growth actually decelerated slightly to 4.0 percent in the first half of 2014, compared to 4.3 percent in the first half of 2013.

But, as Dr. Hartwig concludes:

Premium growth, while still modest, is now experiencing its longest sustained period of gains in a decade.”

Workers compensation is likely to remain the fastest growing major P/C line of insurance in 2014 if economic growth and hiring behave as projected.

While the composite rate for U.S. commercial property and casualty insurance remains positive, at plus 1 percent in August, it is closing in on flat or no increases and rate reductions are coming, according to online insurance exchange MarketScout.

Richard Kerr, CEO of MarketScout commented:

Insurers really don’t want to enter another era of rate declines; but in order to hold business, most of the market is being forced to moderate pricing. If this trend continues, we should see annual rate declines very soon.”

Aug2014_Barometer_Commercial

The key takeaways from MarketScout’s latest analysis:

– Property rates were actually up slightly at plus 3 percent in August.

– Business interruption was down one percent to flat, as were fiduciary and crime.

– Business owners’ policies and commercial auto moderated from plus 3 percent to plus 2 percent.

– Umbrella liability coverage moderated from plus 2 percent to plus 1 percent.

– Workers compensation rates were up from plus 1 percent to plus 2 percent.

– Rates as measured by account size and industry classification remained the same as in July 2014.

Bear in mind that August is traditionally a slower month for insurance placements so the volume of premium measured is less than normal.

Still, the findings tie in with the latest quarterly Commercial P/C Market Index Survey from the Council of Insurance Agents & Brokers released in July. It found prices for commercial p/c insurance continued to slide in the second quarter of 2014. On average, prices for small, medium and large accounts eased by a modest -0.5 percent during the second quarter, compared with 1.5 percent in the first quarter.

 

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).

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