Category Archives: Market Conditions

Benchmark Lowers

That commercial insurance premiums continued their decline in the first quarter of 2007 is only part of the story of the RIMS Benchmark Survey. But let’s take a look at the  highlights: Directors and Officers (D&O), down by 7.7 percent in Q1 2007 and by more than 12 percent in the last two quarters of 2006 combined; workers’ compensation down by 3.8 percent in Q1 2007; and general liability down by just 0.8 percent in the fourth quarter of 2006. Once again commercial property was the only line to report an increase in Q1 2007. No surprise there, but consider that rates in this line reflected a marginal increase of just 0.8 percent, compared with a spike of 6.6 percent in the fourth quarter of 2006. While there is no doubt that companies with properties in catastrophe-exposed regions are still seeing premiums rise, perhaps the underlying story is that even risk managers with coastal property exposures are seeing some relief ahead of  the 2007 hurricane season. For more perspective on pricing and overall industry trends, check out I.I.I. president and chief economist Dr. Robert Hartwig’s latest Overview and Outlook for the P/C Insurance Industry.  Ã‚  

  

D&O Calm?

In our February 8 posting we cited a RIMS Benchmark Survey showing that the Directors and Officers (D&O) line saw some of the largest decreases in premium rates in the fourth quarter of 2006. Now a Towers Perrin survey confirms this trend, noting that the average D&O premium dropped by 18 percent in 2006, after declines of 9 percent in 2005 and 10 percent in 2004. Both reports attribute the softening market to the sharp drop in the number of securities class action suits filed in 2006. While the moderation in prices is good news for D&O insureds and their agents and brokers, the Towers Perrin survey offers this note of caution: “We do not believe that the current improved risk profile will support prolonged soft market premium decreases if underwriters want to write this line profitability.† Indeed, in a speech to the Professional Liability Underwriting Society (PLUS) D&O Symposium earlier this year, John Degnan, vice chairman of Chubb, pointed out that if shareholder derivative claims are included, it appears that overall D&O claim frequency was up, not down, in 2006. Degnan went on to urge D&O insurers to be vigilant, lest the “perfect calm† turn out to be merely the eye of a larger storm. Wise words.

Hill Hearings

Availability, affordability and oversight are the watchwords of two separate hearings on Capitol Hill today. Hearing No. 1. before the Senate Committee on Housing, Banking and Urban Affairs will examine the availability and affordability of property casualty insurance in the Gulf coast and other coastal regions. Dr. Robert Hartwig, I.I.I. president and chief economist, will deliver testimony noting how population growth, rising property values and continued development in vulnerable areas are increasing the cost of property damage inflicted by hurricanes. Current regulatory, legislative and litigation-related obstacles are also raising costs and reducing choices for insurance consumers in hurricane exposed areas. The second hearing before the Senate Committee on Commerce, Science and Transportation will focus on oversight of the property and casualty industry. The industry’s limited federal antitrust exemption under the McCarran Ferguson Act is expected to be the topic du jour.  

Subzero Market

Surveys of current policy renewal prices as reported by agents and brokers, and corporate risk managers, have confirmed a further softening in the commercial insurance market. With the sole exception of hurricane-exposed coastal property coverages, insurers appear willing to lower prices and place fewer restrictions on coverage to get new business, according to the latest market survey from the Council of Insurance Agents & Brokers (CIAB). Ditto the RIMS Benchmark Survey, where the largest decreases in premium rates in the fourth quarter of 2006 were reported in Directors and Officers (D&O) and workers’ compensation lines. D&O, in particular, continues to be a very competitive line of business with rate decreases further stimulated by the sharp drop in the number of securities class action suits filed in 2006, according to analysis from Advisen. Meanwhile, online insurance exchange MarketScout puts the average P/C rate decrease at -9 percent in January 2007.