The soft market appears to be firmly entrenched, so much so that a recent survey of the nation's largest brokers found price declines in all major lines–including coastal property.
The Washington, D.C.-based Council of Insurance Agents & Brokers released its quarterly survey of the nation's brokers, asking them how premium pricing has changed over the past three months.
For the months covering July to September of this year, 103 brokers surveyed said the average price decline was 13.3 percent, with large accounts receiving the highest decline at 15.9 percent.
In anecdotal comments from brokers as part of the survey, respondents noted that coastal properties with wind exposures, primarily in the Southeast, were beginning to ease a bit with some decreases in pricing. However, there was little change in deductibles, according to the comments, CIAB said.
Medium-size accounts (with commission and fees between $25,000 and $100,000) were slightly less at 15 percent. Small accounts (less than $25,000) saw the smallest benefit of the soft market with average premium declines of 8.9 percent.
The average rate of decline is higher than the 11 percent recorded in the previous two quarters.
Seventy-four percent of brokers surveyed said premiums for their small accounts were down between 1- and 20 percent, while 75 percent of the brokers said premium for their medium-size accounts was down in that range.
Sixty-three percent of brokers said their large accounts experienced a premium drop in the 1-to-20 percent range, while 20 percent of the brokers said premiums for their large accounts dropped 20-to-30 percent.
None of the brokers surveyed reported premium increases during the period for the size of account.
According to the survey, rates have been on the decline since reaching their peak increase in the fourth quarter of 2001. Average premium rate changes first began going negative in the first quarter of 2004.
By lines of business, highlighted in the report, commercial property premium in the third quarter was down 15 percent; general liability was down 12.7 percent; and umbrella dropped 11.9 percent.
Other lines:
o Workers' compensation down 11.2 percent.
o Commercial auto down 10.7 percent.
o Business interruption down 10.2 percent.
o Directors & officers liability down 8.7 percent.
o Employment practices down 7.8 percent.
o Medical malpractice down 3.8 percent.
o Surety bonds down 2.1 percent.
The strong indicators of an entrenched soft market were apparent beyond the survey.
In a recent Web seminar, executives at the brokerage firm Marsh, a subsidiary of New York-based Marsh & McLennan Companies, discussed the overall declining market (see NU Online, Oct. 19).
"It's good for clients but challenging for underwriters," said Robert Howe, leader of Marsh's global property practice.
On the property side, Mr. Howe said the property market overall is soft. Clients will see continued lowering of premiums prices and better terms on renewals. He said over 70 percent of Marsh clients saw rate reductions exceeding 5 percent, with median reductions over 10 percent. An account with a good loss record could see reductions as high as 20 percent, he said.
Joseph DeChiaro, managing director with Marsh's global casualty practice, said casualty is soft with renewals flat to reductions of 15 percent. There is a lot of competition in the marketplace, with more admitted carriers writing business that was solely written by nonadmitted markets.
Other lines of business were seeing decreases in the 10-to-20 percent range, executives said.
While clients are experiencing benefits, the downside of the soft market is becoming apparent in the third-quarter earnings reports of insurance brokers.
The chief executive of a bank that owns an insurance brokerage firm, BB&T Insurance Services, found the soft market a challenge to earnings in that sector.
John A. Allison, chairman and chief executive officer of Winston-Salem-based BB&T, said the insurance fee segment was "fairly challenging" in the third quarter of this year in part due to seasonal downtrends but also the competitive pricing environment. He said commissions were flat with premium pricing down 10-to-15 percent, but added he expected stronger fourth-quarter earnings.
Insurance operations fell more than 1 percent, or $3 million, in the quarter to $206 million.
Two of the nation's largest brokers, Arthur J. Gallagher and Brown & Brown, reported downward trends in their earnings blamed on the soft market.
Itasca, Ill.-based Arthur J. Gallagher reported zero percent organic growth for the third quarter of this year as net income grew a modest 3 percent, or $2 million, to $52 million in the quarter.
J. Patrick Gallagher Jr. said the soft market is "presenting a real challenge to organic growth," but he believes the firm's sales culture can do better than the results indicate.
He observed that carriers are willing to slash premiums in order to retain favorable accounts and that its wholesale division's flat performance was another indicator of the standard lines willingness to venture into more lines that they traditionally have not pursued in order to capture more market share.
Daytona Beach, Fla.-based Brown & Brown reported net income growth in the third quarter of 15 percent, but its organic growth suffered, dropping 3 percent because of the soft market.
During an analyst's conference call, J. Hyatt Brown, the firm's chairman and chief executive officer, said the company was hit particularly hard with softening in its Florida market where organic growth was off 12 percent.
Competition from the state's residual market, Citizens, which is writing about 35 percent of the state's property market, has led to drops in premium rates and resulting drop in commissions.
He noted that throughout the country premium declines were coming in anywhere between 5- and 45 percent depending on market and location.
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