Economists said the recession was over some time last year, but a walk down almost any main street in America reveals a different picture.

Shuttered businesses dot the national landscape, bankruptcy filings continue, and unemployed Americans still struggle to find work.

The weak economy has impacted property and casualty insurer top lines, bottom lines and staffing levels.

"P&C Carrier October Employment Slips To Lowest Level In 20 Years," one of our most recent headlines said, revealing that all the consequences of the economic downturn had not yet passed.

From an insurance underwriting perspective, the economy has proven to be a double-edged sword. On the one hand, On the other hand, a weaker economy may be having a positive impact on claims frequency–a potential blessing for insurers mired in a downward pricing competition.

Fewer workers means fewer work-related injuries, for example. Fewer trucks on the road means fewer accidents and lower levels of commercial auto insurance claims.

During a late summer interview, Joe Hutelmyer, president of AmWINS Transportation Underwriters, observed that the economy "shook out" some unsafe operators of commercial vehicles. Gone are some that operated "on a shoestring–that couldn't afford to pay better drivers [or] maintain their units," raising the overall quality level of the trucking industry.

On a negative note, he said the down economy caused the commercial auto market to shrink 25 percent over the last few years. But he and others reported signs that demand was leveling out in both the transportation and construction sectors.

"That's compared to last year and the early part of this year," however, said Peter Eastwood, president and chief executive officer of Lexington Insurance. "If you look at pre-2007 or even 2007, we're sitting at half or less" than those booming levels for both commercial and residential construction, he told NU in October.

The slow economic recovery has had a particularly strong impact on premiums for one line written in the standard commercial insurance market–workers' compensation.

"The recession caused the largest impact on workers' comp in 60 years," said Robert Hartwig, president of the Insurance Information Institute, reporting at NU's Workers' Compensation Educational Conference in August that 8.4 million jobs were lost nationwide between December 2007 and December 2009.

As a result, the workers' comp line lost 23 percent of its premium, according to Jeff Eddinger, a senior actuary for the National Council on Compensation Insurance.

Separately, NCCI's president, Stephen Klingel, said that workers' comp claims frequency fell 3.4 percent in 2008 and another 4 percent in 2009. "The lack of hiring allows the workforce to become more experienced and less prone to injury," according to NCCI's research, he said.

But in a line where NCCI puts the overall combined ratio for private carriers at an unprofitable 110 in 2009–nine points higher than 2008–employees that do suffer injuries may be costing workers' comp insurers more in these lean economic times.

In a report published earlier this month, Moody's Investors Service said that in a sluggish economy injured workers return to the workforce more slowly "because some don't have jobs to return to, and employers spend less money to support early return-to-work programs." The longer workers stay on disability, the more often they seek additional medical treatment or sue, both of which increase claim costs, the report said.

Employment practices liability insurance experts also highlighted potential claim fallout arising from the duration of the economic downturn recently, noting that people who have not been able to find jobs over a prolonged period may feel cornered into filing discrimination, retaliation and other employment practices claims.

While EPL experts also voiced concerns about the possibility that the long-awaited economic recovery could fuel claims over discriminatory rehiring practices, continued economic challenges battering the municipal sector have given rise to still another set of new worries–about p&c insurers' heavy exposure to municipal bonds in their investment portfolios.

Moody's believes, however, that even worst-case muni-bond losses of $4 billion would be more than offset by insurer investment income.

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# 2 The Recession Is Over, Isn't It?

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