NU Online News Service, April 25, 1:34 p.m. EDT
Property and casualty insurers can expect moderate net premium growth but additional deterioration in underwriting results for 2011, according to a new forecast and analysis released by Conning Research and Consulting.
In its forecast for 2011-2013, Conning says 2011 will likely see premium growth between 3 percent and 4 percent. “Expected small increases in premium exposures in personal auto and in most commercial lines are the principal drivers of the premium increase,” Conning says.
However, the firm projects that underwriting results will deteriorate by around 2 percent for 2011. Conning says price competition will likely continue in long-tailed commercial lines such as workers’ compensation throughout the year, but the pace of competition should moderate. “Loss ratios are expected to increase with the economic recovery as higher-hazard job growth increases frequency and severity of average claims,” Conning says.
The firm notes that personal and commercial lines have “developed divergent pricing environments.” While rates are increasing in personal lines, Conning says, commercial lines remain soft.
Conning expects a combined ratio of 103.2 for 2011, up from an estimated 2010 combined ratio of 101.5
For 2012 and 2013, Conning says it expects premium rate firming in commercial lines. “The turnaround in commercial pricing anticipates that insurers will respond to deteriorating underwriting results and operating ratios over 90 percent in some lines of business, such as workers’ compensation,” Conning explains.
Conning adds, “The extent of increasing financial strains in terms of reduced positive cash flow, waning loss reserve adequacy, and higher combined ratios will set the stage for rate increases in 2012 and 2013.”
The industry’s combined ratio is forecast at 102.6 for 2012 and 102 for 2013, while premium growth rates are forecast to be near 5 percent for each year.
Speaking to the impact of the March 11 Japan earthquake and tsunami, Conning says, “Direct exposure to the losses by U.S.-reporting insurers will be limited.” The firm notes that some insured U.S. businesses may file contingent business interruption claims.
Reinsurance of Japanese exposures is expected to hurt global reinsurers, Conning says. “Certainly, Munich Re and Swiss Re have reported the potential for losses in the billions of dollars.”
Conning notes that many analysts are not expecting the quake to cause a shift in the global reinsurance underwriting cycle. “What happens depends on the accumulation of catastrophe losses, including the earthquakes in Chile and New Zealand, floods in Australia, and what is yet to occur later in 2011,” Conning says.