Research firm Conning says all signs point to a deteriorating liability-insurance market.

“The U.S. liability-insurance front has been relatively quiet in recent years,” says analyst Jerry Theodorou in a statement. “Decreasing loss frequency and an ample reserve position have supported satisfactory results even in the face of falling premium rates in the past decade's soft market.”

However, says Theodorou, “the benign period for Liability insurance results may be coming to an end.”

An inflection point may have been reached for loss frequency, tort filings and reserve releases, says Conning.

General-liability rates fell by about 41 percent during the soft-market years of 2005-2011. Rates are on the rise, but modestly.

Meanwhile, the rate of decrease in loss frequency for other lines of liability “is slowing and appears to be bottoming” in the occurrence form, says Conning, and frequency in the claims-made form has increased.

Additionally, the “pattern of reserve releases in recent years will likely see the reserve cycle soon pass the inflection point from redundancy to deficiency,” according to the study.

Legal challenges by plaintiffs' attorneys surrounding the definition of “occurrence” have resulted in woes for insurers. There is also more litigation for D&O and E&O carriers, as plaintiffs' attorneys retool after having been set back by some tort-reform legislation.

“New practice areas with potentially rich pools are emerging to replace the dried-up streams,” says Conning.

Conning found that the most successful liability insurers, using combined ratio as a measuring stick, were E&S insurers. Multiline insurers with a strong E&S focus were the second-best performers.

Conning's “Liability and Tort Trends: Trouble Around the Corner?” is available at conningresearch.com.

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Conning: Once-Positive Liability Insurance Trends Reaching Inflection Point

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