Analysts Ponder Slowdown In Premium Growth Rates
While the only bright spots on the property-casualty insurance industrys nine-month and third-quarter financials were the premium growth rates reported–8.8 percent and 6.5 percent, respectively–neither figure was anything to write home about.
Indeed, net written premiums grew at healthier rates earlier in the year–10.4 percent in the first quarter, 8.6 percent in the second, and 10 percent for the first half.
"I can't explain it. I was certainly expecting something in the 10 percent range," said Robert Hartwig, vice president and chief economist of the Insurance Information Institute in New York, speculating that post-Sept. 11, writings might have slowed down as insurers stepped back from the market briefly. "Some of the premium that would have been written in the third quarter might get pushed into the fourth quarter."
At the Jersey City, N.J.-based Insurance Services Office Inc., Michael Murray, assistant vice president, financial analysis, suggested a number of explanations, including the slowing economy and increases in reinsurance premiums paid to foreign reinsurers, which would reduce U.S. net premiums.
What the figures suggest is that "there are going to be a number of statistical anomalies that are going to affect calendar period results for the next several quarters," said Mr. Hartwig, giving a related example from "the larger world."
"The trade deficit in the United States recently dropped dramatically. The reason was that there were large [loss] payments by foreign insurance companies to U.S. insureds and their primary insurers. That has the same impact as an export," he said.
Karen Horvath, vice president for A.M. Best in Oldwick, N.J., also attempted to explain slowing growth figures in a recent Best report. The figures show that commercial premium growth hit its high in the first quarter (at 16.2 percent), falling to 7.2 percent and 8.1 percent in the next two quarters.
"Its probably just different mixes of policies that come up for renewal in different quarters," with, perhaps, many large commercial accounts renewing Jan. 1, she said. There also may be some impact from workers compensation, she speculated, noting that as payroll came down due to general economic changes, insurers might have gotten less premium.
The Best report predicts a 9 percent rate of net premium growth for all of 2001, and that "reinvigorated competition" will begin to slow pricing gains beginning in the latter half of 2002.
Ms. Horvath said she thinks a recent forecast by equity analysts predicting a 15 percent growth rate for the industry in 2002 is somewhat optimistic. However, she believes that premium growth next year will not be significantly dampened by a need for policyholders to move to self-insurance alternatives.
(The projections of 12 equity analysts are shown in the accompanying table from the annual Insurance Information Institute report known as the "Early Bird Forecast.")
In spite of recent announcements–like one by St. Paul declaring medical malpractice "uninsurable," another by The Chubb Corp. saying that employment practices liability for large companies is headed in that direction, and others talking about the uninsurable nature of workers comp for large urban employers–"there's still a lot of capacity out there for those types of risks," she said.
"When you have significant market dislocation, that's only going to force prices higher and that may keep some players in the market longer than they otherwise might have been," she added. "I think you will see some loss of business to the alternative market, but a lot of it will move to the excess and surplus lines market before it moves out of the traditional insurance market."
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 7, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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