As rating agencies recently affirmed their negative outlook on commercial lines due in part to soft-market pricing, a new Towers Watson survey shows that rates have been flattening for nine months.
In a recent report, Moody's Investors Service says, "The combination of continued price declines, stable-to-rising losses and a limited ability to support earnings through reserve releases suggests that the commercial-lines market will remain highly challenging for the remainder of 2011."
And at Standard & Poor's 2011 Insurance Conference earlier this month, Neil Stein, director and property and casualty-sector specialist at S&P, said commercial lines are challenged by "a plethora of factors," including price declines, competition, lower demand and reduced investment income. He called price declines the biggest risk factor for primary P&C companies.
In its Commercial Lines Insurance Pricing Survey (CLIPS), Towers Watson says price levels have remained at minus-1 percent for the past three quarters after dropping from zero in the 2009 third quarter. The numbers excluded state workers' compensation funds.
The CLIPS survey of 39 insurance companies, representing 20 percent of the commercial-insurance market, indicates a flattening trend began in the 2008 fourth quarter, when pricing rose from negative-4 percent to negative-2 percent. Since then, prices rose to 1 percent in the second quarter of 2009 before dropping back to zero and then negative-1 percent.
In a statement, Towers says price reductions continued for commercial-property and management-liability lines. However, workers' compensation is showing modest increases after remaining flat for the last two years overall.
The consulting firm says aggregate price-change indications showed some differentiation by account size, with small price increases for small and midmarket accounts, flat prices in large accounts, and price reductions in specialty lines.
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