Industry reports released over the past week show that plenty ofcapacity still remains for property and casualty lines, but thedirection of pricing remains uncertain.

A report released by Marsh, “Spring 2011 Insurance MarketUpdate,” says capacity is high, but catastrophe losses arebeginning to strain rates, and increases are likely in somesectors.

The insurance broker's report notes that 2011 budgets forcatastrophe losses among many insurers and reinsurers have alreadybeen “substantially eroded.” In some cases those budgets may havebeen exceeded. That portends rate increases in the coming year,principally for catastrophe exposures in those regions immediatelyaffected by recent events.

“The global insurance market faces substantial pressure,especially with the upcoming 2011 U.S. Atlantic hurricane seasonpredicted to be more active than usual,” says Nicholas Bacon, CEOof Bowring Marsh, in a statement. “Any future catastrophe lossesthis year are more likely to directly impair the capital positionsof reinsurers than impact earnings, which could drive rateshigher.”

There is also concern that the revised hurricane-catastrophemodel being released by Risk Management Solutions (RMS) will putpressure on rates.

“Given these changing market fundamentals, there is insufficientsupport for the continuation of a softening market cycle,” Baconnotes.

The Risk and Insurance Management Society Benchmark Survey,administered by Advisen Ltd., also noted high capacity—and foundthat three of the four lines of business tracked posted materialdecreases in average renewal premium, as reported by riskmanagers.

While underwriters have tried to hold the line on premiums,capacity is high and their resolve has shown some “cracks,” saysAdvisen's executive vice president, Dave Bradford.

Bradford tells NU that because of the poor economy,risk managers have had to stay within budgetary parameters. Theyhave had to find ways to cut insurance coverage costs by purchasingless coverage and/or taking higher retentions—“but that justincreases the capacity,” he observes.

He adds that he was “actually surprised to see over the pastcouple of quarters how well rates were holding up, given theenormous amount of capacity in the market.”

“When talking to risk managers,” he says, “they confirmed thatinsurers were willing to hold the line on prices and walk away fromsome risks.”

However, he says, “I couldn't see that holding up indefinitely.We're seeing, at least for this quarter, some cracks in thatresolve.”

The survey found that commercial-property insurance posted thelargest rate decrease, falling 4.2 percent on average for policiesrenewing during the quarter. The average workers' compensationpremium fell 3.2 percent, and the average directors and officerspremium dropped 2.3 percent.

General liability was the only line tracked by the survey to notrecord a material decrease, declining only 0.8 percent.

Another report released by Conning Research and Consulting saysP&C insurers can expect moderate net premium growth butadditional deterioration in underwriting results for 2011.

In its forecast for 2011-2013, Conning says 2011 will likely seepremium growth between 3 percent and 4 percent. “Expected smallincreases in premium exposures in personal auto and in mostcommercial lines are the principal drivers of the premiumincrease,” Conning says.

However, the firm projects that underwriting results willdeteriorate by around 2 percent for 2011. Conning says pricecompetition will likely continue in long-tailed commercial linessuch as workers' comp throughout the year, but the pace ofcompetition should moderate. “Loss ratios are expected to increasewith the economic recovery as higher-hazard job growth increasesfrequency and severity of average claims,” Conning says.

The firm notes that personal and commercial lines have“developed divergent pricing environments.” While rates areincreasing in personal lines, Conning says, commercial lines remainsoft.

Conning expects a combined ratio of 103.2 for 2011, up from anestimated 2010 combined ratio of 101.5.

For 2012 and 2013, Conning says it expects premium-rate firmingin commercial lines. “The turnaround in commercial pricinganticipates that insurers will respond to deterioratingunderwriting results and operating ratios over 90 percent in somelines of business, such as workers' compensation,” Conningexplains.