NU Online News Service, July 31, 3:26 p.m. EDT

A survey of property and casualty insurance brokers lends further evidence that rates are continuing to move upward, but experts still doubt whether a hard market is on the way, and some question the current environment's momentum.

The Council of Insurance Agents & Brokers released its second-quarter Commercial Property and Casualty Index Survey today, which indicates average rates for all sizes of accounts rose 4.3 percent during the period.

Small and medium size accounts saw increases of 4.3 percent and 4.9 percent respectively. This compares to increases of 4.2 percent and 4.9 percent for the prior year's second quarter.

Large accounts experienced the only drop in price increases, moving from up 4.1 percent in the first quarter of this year to up 3.7 percent for the second quarter.

“There's no doubt it was a tougher market for buyers the last three months than the quarter before,” says Ken A. Crerar, president and chief executive officer of the CIAB in a statement.

“Rates continued to climb as insurers tightened reins on underwriting. More business was being pushed into the surplus-lines market as carriers pulled back on capacity, particularly for catastrophe exposures.”

Robert Hartwig, president of the Insurance Information Institute, Inc., calls the report further indication that rates are increasing at a flattening pace and that there was little to be surprised about.

“The fundamentals in the market are such that they do suggest that pricing does need to continue to firm, but there are no catalysts in place for a traditional hard market,” says Hartwig, who defined a hard market as price increases in the double digits.

Hartwig says that one element that is keeping the industry from moving into a robust hard market is plentiful capacity, despite last year's catastrophe losses.

However, several lines of business, according to the report, are showing signs of greater increases. He noted Workers compensation, property and directors and officers as three of those lines.

Of the brokers surveyed, 33 percent say their client's rates rose in the range of 10-20 percent for workers' comp. Twenty-seven percent of brokers say clients' rates rose by double digits for commercial property, and 14 percent say client's saw double digit increases on their D&O coverage.

Hartwig says workers' comp needs to harden because combined ratios are well over 100, and with investment yields low, “it will take years to turn around that line.”

The CIAB's survey is only one of a few reports that have come out, along with earnings releases, to indicate that rates are on the increase, but James B. Auden, managing director at Fitch Ratings, says, “We wonder how much momentum there is.”

He says industry fundamentals, low interest rates producing small investment yields, and declining favorable reserves would indicate increases going into at least early next year.

While the industry is likely to see a much narrower underwriting loss than last year, assuming normal catastrophe losses, Auden says that until the industry gets to a combined ratio in the mid-90s, insurers will not return to underwriting profitability.

“The current rate improvement is more in reaction to recent losses than a change in competitive dynamics,” says Auden. “We don't know if the current market has enough momentum to get back to [the hard market of mid-2000s] because of competitive factors and the amount of capital deployed in the P&C business.”

A hard market, he says, won't come until capital is removed from the market, and that will not happen unless there is a monumental event to alter the dynamics of the marketplace or insolvencies to drain capital.

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