In June, reinsurance intermediaries Guy Carpenter and Aon Benfield both reported that reinsurance catastrophe renewal pricing for Florida-influenced programs increased approximately 15 percent over 2008. The year-on-year increase took into account a number of factors. Of importance to Florida insurance professionals is that included in that list was the ongoing concerns about the adequacy of the Florida Hurricane Catastrophe Fund with respect to its ability to make full or timely payments when needed.
In markets not linked to property, the pricing news is mixed. For most commercial specialty classes of business, rates are not increasing and in some cases may still be falling. Whether this is viewed as good news or bad news depends on whether you are buying or selling, prospecting or renewing, paying claims or producing.
The pricing trend in the commercial lines market, especially on the surplus lines side, is more of the same. Mike Franzese, vice president of Burns & Wilcox in Tampa, said, "I haven't seen the property markets firm up at all at this point. It may be happening on the larger accounts and excess layers, but not based on my experience."
Derick Stitik, senior vice president at Swett & Crawford in Clearwater, concurred, but does see the possibility of movement. "The first four months of 2009 rates have been status quo. Companies have been standing pat on renewals, but are still being somewhat aggressive on new business. In the last month or so capacity seems to be reducing a little," he noted.
Brokers report that the standard market continues to cherry-pick accounts, leaving less desirable business to the surplus lines market. This is especially true on the property side. "The majority of property business coming to me for surplus lines markets is still comprised of less superior construction," Franzese said.
On the casualty side, Kevin Wright, brokerage manager for Hull & Company in Ft. Lauderdale, reported that pricing "continues to slide and the trend for customers is to expect a decrease, even if it is only five or 10 percent." Rates in the professional lines arena, specifically, continue to decrease, with most products experiencing significant rate competition. The one significant area of exception is real estate-related risks. Real estate agents, title agents, and mortgage brokers have fewer markets aggressively seeking that business, so rates there are typically up.
Soft Market Continues
Factors contributing to the continuing soft pricing trend in the specialty markets include:
- Ample product supply. For most classes of business, there is no dearth of insurance companies competing for market share. Even if no new players come into the market, existing carriers may expand their product offerings and/or coverage on current policies to protect their market share.
- Ample capital supply. Capital is readily available on most lines of business, and that allows competition at or below expiring policy rates/premiums. Stitik said, "Capacity has not been an issue on casualty business, at least not on accounts we've worked. There is still so much competition that it is not likely this will change anytime soon." That is fairly consistent across most lines of business.
- Reduced demand. Demand is adversely impacted by business closings and intact businesses reducing policy limits and/or coverage. Wright noted, "I am seeing a couple of risks a week that are either going out of business or deciding not to buy some or all of the coverage they had last year. It is not a huge percent of the book — maybe five percent — but it is still a factor."
Brokers appear resigned to the idea that rate increases on most classes will not happen to any measurable extent in 2009. Also adversely affecting agency revenue is the pullback by policyholders trying to lower their costs by asking for less coverage, higher deductible and/or lower limits. However, at least some of those customers are now rethinking that position, according to Wright. "This year, more than ever, we saw a lot more risks that elected to go without wind coverage. But now that we are into hurricane season, we are seeing more and more requests for wind coverage from existing accounts and new ones."
Along with capacity, policy wording more favorable to the insured on some lines of business continues to be available. When carriers feel that they cannot further reduce their rates, one of the few available options is to amend coverage. In the past couple of years, coverage enhancements have returned for many classes and types of business.
Stitik said his team has told him that on many classes, like D&O and EPLI, "Coverage continues to expand. Companies continue to offer additional coverage; third-party coverage is now pretty standard with any carrier, where it was an added coverage a few years ago." Other changes include modifying the wording on consent-to-settle clauses to the insured's favor.
Not all carriers are aggressive with coverage changes, however. Franzese, who focuses primarily on property, said, "There have not been any real changes in wording or added coverage to this point, but if the market continues as is, that may be coming."
And finally, in many classes of business the trend continues by carriers to package, wrap or combine several coverage areas into one product. Package policies with property and liability combined are well known and frequently utilized by most agents, but many still do not think about other types of package options.
Management liability includes D&O, EPLI, and crime coverage, while some carriers writing D&O are now also offering a package with contents and GL. Other carriers continue to innovate by combining several coverages or adding coverage options; observers expect more companies to duplicate those efforts.
Absent a catastrophe event or events, it would appear that we are in for at least another year of soft market conditions. That's the good news — or is that bad news?
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