4 Questions for Robert Hartwig

Editor's Note: As much as we love to sound off each week, we love even more the chance to speak with interesting industry executives—and to share their perspectives on crucial trends with you.

Kicking things off is our conversation with Robert P. Hartwig, noted economist and president of the Insurance Information Institute.

NU: What can we infer about current market conditions from seven straight quarters of premium growth?

HARTWIG: There are two conclusions that can be drawn from the fact that the industry has experienced seven consecutive quarters of premium growth.  The first is that the “era of mass exposure destruction” has ended, and a recovery has begun. 

In other words, the end of the “Great Recession” in mid-2009 helped lead to an increase in exposures by the first half of 2010. That growth continued and even accelerated through 2011. The exposure gains are particularly pronounced in areas such as payroll, which is the exposure base for Workers' Compensation.

The second factor is that rate increases are beginning to take hold. While personal-lines pricing has trended positive for the past several years, commercial-lines pricing turned positive only during the second half of 2011 following 30 consecutive quarters of negative renewals.

What's the situation with the release of prior-year reserves? How much longer can the industry count on these releases to prop itself up?   

Release of prior-year reserves gave a boost to the industry's bottom line once again in 2011, helping to blunt some of the impact from high catastrophe losses. It is likely that many insurers will be able to release meaningful prior-year reserves in 2012 and possibly in 2013 as well, albeit at levels lower than in years past.

We hear often of catastrophe losses but not much on losses in non-cat lines, such as Workers' Comp. How much are these types of losses contributing to the overall P&C combined ratio?

Results in non-cat lines in 2011 appear to have been relatively stable. That said, Workers' Comp is the worst-performing of all major P&C lines—with a 2012 combined ratio in the neighborhood of 117. Apart from Workers' Compensation, most other non-cat lines appear to have suffered only a small deterioration in their calendar-year performance, on net.

Are factors in line for real pressure on rates, or does there remain such an abundance in capacity that carriers will continue to heavily compete for accelerating exposure growth?  

At the current point in time there is no catalyst that would lead to a traditional “hard market” in 2012 or 2013. Capacity remains adequate and is likely to expand in 2012. Underwriting results—with some notable exception such as Workers' Comp—are not yet consistently disastrous, and reinsurance markets appear willing and able to meet demand for coverage even after the record-setting global catastrophe losses in 2011.

—Interviewed by Chad Hemenway