Despite all the catastrophes of 2011, the year as a whole was income-statement-driven—an earnings event—rather than a capital-and-surplus event.

Industry observers have declared as much, and an ALIRT Insurance Research report on first-quarter results from 50 large U.S. P&C insurers it follows (the ALIRT P&C Composite) points to yet another reason many are tempering their outlooks for an imminent market-hardening.

According to the ALIRT P&C Composite, surplus increased 6.1 percent during the first three months of 2012, and total industry surplus is now 5 percent higher than at the end of 2007, before the financial crisis.

This financial capacity “argues somewhat against a continued rise in rates, especially given the relative decent underwriting results by the broad industry,” the report says.

“This is why I think you can tell we take a somewhat skeptical view” of a market moving quickly toward hardening rates, ALIRT Principal Daniel Paul tells NU.

Paul lists slow economic improvement and a hesitancy among buyers to pay higher rates among other reasons for—at best—a slight market hardening, rather than a pronounced upward swing.

Judging by recent conversations he's had with brokers, “buying behavior seems to be getting better,” says Paul. “It may be that companies can now afford rate increases without endangering the company.”

When buyers and insurers get used to higher prices, he adds, there can be a “self-fulfilling tendency” toward a hard-market shift—which is as much a driver of a hard-market turn as any earnings numbers.

Another factor he says may play a role in keeping prices down: more competitive underwriting. “You hear a lot about data-mining and the increased capabilities of underwriters to really dig down and more accurately write exposures,” he adds. “Better pricing should become a factor in keeping market cycles shallow.”

ALIRT's report also lists continued prior-year reserve releases as another reason for the slow-moving market turn. The composite group turned in a combined ratio of 97.8 for the first quarter—the best result since 2008's first quarter, according to the firm.

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