There is growing evidence that insurance rate declines are beginning to moderate, but that does not mean the end of the soft pricing cycle is in sight, according to two financial analyst reports.
Stifel Nicolaus & Company said there are indications of some moderation in rate declines and possible rate increases on some lines of business, based on data released by the National Association of Insurance Commissioners through Highline Data and Insurance Services Office.
Highline Data is a Summit Business Media Company that also owns National Underwriter.
A Stifel Nicolaus report of commercial lines business from first quarter of 2008 data said "aggregate premium volumes" are down year-over-year in three business segments: commercial auto liability, commercial multiple peril and workers' compensation. The loss ratio deteriorated for both commercial multiple peril and workers' comp, but improved for commercial auto.
Direct loss ratio rose 4.8 points to 49.6 percent on commercial multiple peril and rose 1.5 points to 61 percent for workers comp. Commercial auto liability declined 1.8 points to 56.8 percent.
The improvement in commercial auto, the report suggests, may be due to reduced driving in response to higher gas prices.
On the workers' comp side, the report says "there is a lot of 'churn' going on beneath the surface" of these companies with 15 of the top 100 writers outpacing industry growth rate "by 20 points or more," compared to only eight of the top 100 commercial auto and seven of the top commercial multi-peril writers.
The reports said the analysts, headed by Meyer Shields, believe "this more widespread premium growth reflects more aggressive pricing behavior that will eventually lead to underwriting margin deterioration."
On the personal lines side, examining private passenger auto, loss cost inflation is considered benign, but showing signs of substantial increase over the recent four quarters ending with the first quarter of this year, the firm said.
Long term analysis, the past 12 quarters, the report said, indicates annual loss const trend stands at negative 0.2 percent. However, short-term, past four quarters, the annual loss cost trend stood at 2.1 percent.
Frequency has improved over the short term, the report said, citing rising gas prices that is reducing driving. Severity trends, however, are on the increase reflecting inflation pressures, the report observed.
On the homeowners side, loss costs are rising rapidly, about 10 percent annually over the long term and 14 percent annually, short term. The analysts said they expect "fairly rapid underwriting margin deterioration for the line over the next 12-18 months."
While loss cost trends are under control, the soft market cycle for personal private auto is expected to slow in 2008 "reflecting modestly rising rates being implemented by many carriers."
Reviewing loss cost trends by states for private passenger auto, Mississippi had the best numbers with total loss cost of negative 6.4 percent, followed by North Dakota and Massachusetts at negative 6.2 percent. Hawaii and Florida were next in the top five states at negative 3.4 percent.
The worst state was Wyoming at 5.4 percent increase, followed by South Dakota at 5.3 percent. Rounding out the top five states for worst loss cost trends was Oregon at 3.8 percent, Delaware at 3.6 percent and Illinois at 3.1 percent.
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