MarketScout Says 3 Big Insurers Depressing Market Prices

The chief executive of the online insurance exchange MarketScout announced that three unnamed insurers are keeping rates low at a time when business realities call for market hardening.

In the Dallas-based company's release of its monthly barometer on insurance market pricing, Richard Kerr, chairman and chief executive officer of MarketScout, said, "Every sensible economic indicator tells us rates should be increasing, yet there are still three large, admitted, publicly traded insurers clamoring for premium, seemingly at any rate and continuing to prolong the soft market."

He did not respond to calls and e-mails asking him to identify the companies involved.

Mr. Kerr's statement said the end of a soft market is traditionally punctuated by deep rate cuts "by a few desperate insurers," usually signaling the end of the cycle or "the end of an irresponsible insurer."

Once these insurers cease cutting rates, the way is cleared for increases, he observed.

He predicted an end to the soft cycle by year's end, saying all admitted and surplus writers but the three in question are making "appropriate underwriting decisions."

He advised stock analysts to be more probing in their questions with CEO's and to seek more detail about underwriting practices. The best source is brokers, though many will be reluctant to divulge information for fear of losing access to these insurers, he noted.

Brokers cannot be blamed for the continuation of the hard market, said Mr. Kerr, because they are acting in the best interest of their clients to get the best price. However, the shareholders are paying the price.

"In our new financial world, the CEOs of the terrible trio are ultimately going to have some explaining to do," he observed.

Many critics have pointed fingers at American International Group, accusing it of underpricing risk in exchange for volume. A charge the company has adamantly denied.

Underscoring Mr. Kerr's observations, MarketScout reported the composite premium rate for May stood at minus 6 percent, compared to minus 7 percent in April. The May 2009 figure is a notable improvement from last year where the composite premium rate came in at minus 11 percent.

Most coverage classes were down by 4 or 5 percent. The exceptions were business owners policy, general liability and umbrella excess (minus 6 percent); workers' compensation at minus 7 percent; and fiduciary at minus 3 percent.

Examining account size, only jumbo size accounts of over $1 million in premium remained unchanged on a month-to-month basis at minus 8 percent.

Small, medium and large accounts changed one percentage point on a month-to-month basis. Small and medium size accounts went from minus 7 percent in April to minus 6 percent, and large accounts went to minus 7 percent for May from minus 8 percent in April.