While property and casualty premium gain is expected for 2010, it will likely lag the real gross domestic product growth rate as commercial lines pricing continues to be soft, according to a Conning Research & Consulting analysis.
Conning said it expects premium growth to be stronger in 2011 and 2012, but noted that underwriting results "will likely get worse before they get better."
"Rising losses and related falling returns on capital will be the catalysts to drive insurers to firm premium rates," the Hartford-based firm predicted.
While Conning said it is forecasting a real GDP growth rate of 3.3 percent for 2010, net p&c premium growth is expected to be less than half that–just 1.4 percent.
A similar Conning report in April (http://bit.ly/ctwKbr) had been more optimistic, predicting 2010 net premium growth near 2 percent.
"Our expectation is for anemic premium growth overall in 2010–weaker than GDP growth–as exposure growth lags economic recovery," Clint Harris, an analyst at Conning, said in a statement.
Conning said it expects more robust growth of nearly 5 percent in 2011 and 2012 as the result of "a combination of increasing exposures and increasing premium rates."
In addition, "we expect that larger underwriting losses in 2010, assuming near average or larger catastrophe losses, will drive premium rate firming in 2011," Conning said.
Drilling down into specific lines, Conning expects positive premium growth this year for personal auto after three years of declining premium, with improving exposure growth due to new car sales and rate firming driving the gains.
Conning expects the personal auto combined ratio to show continuing improvement over the next few years–from 98.5 in 2010, to 96.9 in 2011, and down to 95.7 in 2012.
Homeowners insurance is expected to show "moderate premium growth over the forecast horizon" of 2010 to 2012, driven primarily by increases in insured values and continued price firming. Weak housing market results, however, continue to have a negative impact on Conning's assumptions regarding growth in exposure units.
A stronger catastrophe impact and increases in non-catastrophe loss costs are expected to negatively affect the homeowners line, according to Conning, which anticipates the combined ratio to come in at 110.9 for 2010, then deteriorate to 111.5 in 2011 and 112 in 2012.
Conning said workers' compensation premiums will likely continue to decline in 2010 due to limited exposure growth and rate competition. Lower earned premiums and limited loss reserve redundancy will lead to a 2010 combined ratio of about 116, with rate competition keeping the combined ratio there through 2012, Conning predicted.
Increasing job growth from the economic recovery should drive workers' comp premium growth in 2011 and 2012, according to Conning.
Premium gains will be slow for commercial auto in 2010 due to limited exposure growth in the recovering economy, but exposures are likely to pick up in 2011 and 2012, driving premiums up to 8 percent and 7 percent, respectively, in those years.
Inflation on medical costs as well as increased demand on atrophied equipment and driver pools will keep the commercial auto combined ratio over 100 for all three years, Conning added.
General liability premium reductions should come to an end in 2010, Conning predicted, with modest growth of 1.3 percent expected for the year. Conning added that decreasing loss severity and frequency trends from 2006 and 2008 are not expected to continue.
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