While executives on third-quarter-results conference calls say they are seeing improvements in the rate environment, Insurance Information Institute President Robert Hartwig believes the stars are not quite aligned yet for a market turn—and a recent report suggests the impact of rate increases in 2012 could be tempered by expectations of low investment yields.

Speaking to analysts on a conference call, ACE Ltd. CEO Evan Greenberg said September was the best month for pricing this year.

But some companies continue to write irresponsibly, he noted: “They don’t know any better. I’m convinced many of them don’t know the difference between what’s an adequate or inadequate price.”

Greenberg said the best companies “are endeavoring to do what we do and show discipline. And they are trying to press the market to recognize a price that reflects the risk.”

Thomas F. Motamed, CNA Financial Corp.’s chairman and CEO, said during his company’s third-quarter conference call, “We see rates continuing to get stronger in commercial,” noting a progressive increase in rates of 1.2 percent in the first quarter, 1.8 percent in the second quarter and 2.4 percent during the third quarter.

“The visibility of a cycle change is even more evident,” says W.R. Berkley CEO William R. Berkley, noting that prices during the quarter were up 3 percent from a year ago.

But Hartwig points out that many of the factors that need to be in place for a property and casualty market turn aren’t currently there—at least not enough to cause the type of sharp turn toward a robust hard market.

He says four criteria must be met for a market turn: sustained underwriting losses, material decline in surplus and capacity, a tightening reinsurance market and renewing underwriting and pricing discipline.

In past market-hardening periods, all lines of insurance were doing poorly and each contributed to rapid rises. That is not the case this time, he says.

“For instance, private-passenger auto is not doing poorly, and that is one-third of all premiums written,” says Hartwig. “All lines are not contributing to an overall market turn. The overall magnitude of any turn won’t be as strong as in the past.”

Meanwhile, an “Industry Update” by analyst firm Keefe, Bruyette & Woods (KBW) suggests that while P&C insurers are “excitedly discussing” the prospect of 2012 rate increases and improving loss ratios, the net impact of such a development will likely be challenged by a sluggish investment environment.

“In a scenario where loss ratios improve modestly while investment yields decline, the net impact for most appears to be close to a wash,” the firm said.

Making matters worse for insurers, KBW added that lower reinvestment rates “appear to be more of a certainty than improving loss ratios.”

Special Reports /

Rates &lsquo;Improving,&rsquo; But Conditions Not Quite Right for Market Turn

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Rates ‘Improving,’ But Conditions Not Quite Right for Market Turn