Surveys Clash Over P&C Market Direction

Both EPLI and surety went from a drop of 3 percent in October to a decline of 2 percent in November. Fiduciary and crime went from a drop of 2 percent to down 1 percent last month.

Only BOP bucked the trend, going from down 3 percent in October to a drop of 4 percent last month.

By account size, both small accounts (down 4 percent) and jumbo accounts (falling 5 percent) saw the average rate movement remain unchanged, while rate cuts for medium-size accounts were slightly deeper, from negative-5 percent in October to negative-6 percent last month.

Large accounts, on the other hand, went from an average drop of 6 percent in October to down 5 percent last month.

In contrast, third-quarter commercial insurance rates reportedly increased 0.3 percent, with hardening prices in property and specialty lines such as directors and officers liability, according to the Towers Perrin CLIPS survey. Towers noted that the uptick represented the second-consecutive quarter-to-quarter modest increase after nearly five years of steady decreases.

The Towers survey compared prices charged on policies underwritten by 35 participating insurers during the third quarter of 2009 to those charged for the same coverage in the same quarter in 2008.

By that methodology, Towers determined that commercial insurance prices also increased 0.8 percent during the second quarter of 2009 over the same quarter in 2008.

Only two lines were found to show price reductions in the third quarter–workers' compensation and commercial auto. In both cases, Towers Perrin said the price decreases were minimal.

"Two quarters of flat prices underscore our belief that market conditions have changed from an environment of rampant price-cutting to one where greater caution prevails," said Stephen Lowe, Towers Perrin managing director for global property and casualty insurance consulting, in a statement.

"Over the last few years, favorable claim experience caused many to believe that they had ample margins for their prices, and could therefore afford to cut prices aggressively," he added. "Our view is that prices have now fallen to the point where profit margins are very thin. Since most companies now have price-monitoring systems in place, they can see that they are at the edge of the precipice–and they are reticent to cut prices further."

In Mr. Lowe's view, "the credit crisis and recession have also helped to create a more cautious environment." However, he added, "looking forward, it's anyone's guess where the market goes from here."

"We may be witnessing a new era, where better price-monitoring information enables companies to manage prices with greater discipline," he said. "Alternatively, it's also possible that renewed pressure for top-line growth will cause prices to resume their downward trend, reflecting the cyclicality that has been typical in the past."

The Towers Perrin survey found prices for large accounts–those with premiums in excess of $50,000–rose in the third quarter, while middle-market accounts remained basically flat.

This upturn, Towers firm stated, is "not entirely surprising, as large accounts realized the greatest price declines in both 2007 and 2008, according to CLIPS findings. Small-account prices continue to show modest–but continually smaller–price decreases."

Year-to-date through the second quarter, accident-year 2009 loss ratios deteriorated five points relative to 2008, according to CLIPS.

Towers Perrin said its CLIPS survey data is based on both new and renewal business figures (when available) obtained directly from carriers underwriting the business, and indicate more conservative price reductions than other marketplace surveys.

Survey participants were said to represent a cross-section of U.S. property and casualty insurers that includes many of both the top-10 commercial lines companies and the top-25 U.S. insurance groups.

M&A IMPACT

Meanwhile, Dallas-based MarketScout said in a statement that there appear to be "serious" plans on the part of the largest insurance brokers to acquire small-to-midsize agencies and brokers to grow their middle-market business.

Marsh & McLennan Companies, which announced such an initiative in 2008, acquired its first agency–Insurance Alliance of Texas–last month, promising more such deals to come.

MarketScout said these brokers could purchase 30-to-40 percent of the independent agent market in the next three-to-four years.

With these acquisitions, MarketScout reasons, the mega-brokers "would be able to use their muscle to cut better deals for themselves and their clients. If the result is more commissions for the mega-brokers and a better deal for the insureds, it's a win-win situation…for everyone but the insurers."

Such a scenario, MarketScout said, could help to prolong the soft market.

"It seems this mantra comes about every 10 years or so, but this time it may be more serious," MarketScout said. "The big boys are not trying to grow middle-market business internally as in years past. This time they plan to buy instead of build."

MarketScout concluded that "no one knows how this will play out, but it is yet one more thing for middle-market insurance company executives to worry about."