P&C Market Rates Keep Falling, But Cuts Moderate

Property and casualty insurance pricing remained soft through midyear, with rate declines moderating at a slow but steady pace, MarketScout's monthly “Barometer” survey found.

The composite rate index for June 2009 was down 6 percent–the same figure as in May, but nearly half the average cut of 11 percent for the same month in 2008.

“June renewals show rate declines that continue to moderate, with many insurers waiting to determine how the July 1 reinsurance renewals will impact capacity,” according to Richard Kerr, chief executive officer of the Dallas-based electronic insurance exchange.

MarketScout is finding capacity down for coastal property, while property-catastrophe coverage in general is going to be tougher to secure.

Mr. Kerr said that a decision by Berkshire Hathaway to curtail property-catastrophe capacity has led to some speculation about the company's motives.

The question, he said, is “whether the company is trying to avoid losses and the resulting pressure on their balance sheet, or simply limiting capacity anticipating higher rates.”

Mr. Kerr advised that “smart insurers are retaining their capacity until sensible risk return ratios are available,” warning that “poor underwriting results are pending for some major insurers. Expect significant market movement in the next 12 months with clear winners and losers.”

However, there was no further mention by Mr. Kerr about any “terrible trio” keeping the market unjustifiably soft. Last month, he indicated that the soft market should be nearing its end, except for “last gasp, deep rate reductions by a few desperate insurers…”

“Once these irresponsible underwriters are reined in, we should be on the way to rate increases,” he said last month.

While noting that the “terrible trio” were “three large, admitted, publicly traded insurers clamoring for premium seemingly at any rate and continuing to prolong the soft market,” he repeatedly declined to name any of the carriers.

MarketScout calculates the U.S. p&c market condition by analyzing data amalgamated at its insurance exchange (www.marketscout.com) and via in-person surveys conducted by The National Alliance for Insurance Education and Research.

By coverage, all classes either remained the same or moderated further with the exception of workers' compensation–which saw average rate reductions deepen from 7 percent in May to 8 percent for June.

General liability was down 6 percent, while commercial property, umbrella excess, professional liability and businessowners policies were down an average of 5 percent.

A 4 percent reduction was listed for inland marine, commercial auto, employment practices liability, crime and surety. Directors and officers liability and fiduciary were down 3 percent.

By industry, contractors were the only class of business that experienced bigger rate reductions than average, at 7 percent.

By size, small accounts moderated the most at an average rate reduction of 4 percent. Jumbo accounts (those over $1 million in premium) were down 7 percent; large ($250,000-to-$1 million) and medium accounts ($25,001-to-$250,000) were both down 6 percent; and small accounts (up to $25,000) were down 4 percent.