NU Online News Service, July 17, 3:36 p.m. EDT
Property rates continued to climb in the 2012 second quarter, rising an average 3.1 percent overall and 5.3 percent for catastrophe-exposed risks, according to Marsh's latest Benchmarking Trends report.
But Duncan Ellis, Marsh's property practice leader, says the rate environment is "definitely not a hard market" in the traditional sense of the word.
The Marsh analysis states, "This trend of moderate rate increases is expected to continue for the remainder of 2012 as underwriters continue to use catastrophe models and actuarial formulas to determine pricing and capacity," the analysis states.
Marsh says that 61 percent of its accounts saw rate increases in the second quarter, while 25 percent saw rate reductions. Fourteen percent remained flat. Marsh notes that clients who increased their deductibles, reduced limits, or restructured their programs in order to avoid rate increases were excluded from the analysis, which takes into account all of the broker's property clients.
While the averages show moderate rate increases, Marsh notes that loss-driven and heavily cat-exposed accounts experienced steeper increases of up to 20 percent or more. "Even considerably cat-exposed U.S. companies without losses generally experienced increases between 10 percent and 20 percent."
Ellis, in defining exactly what the second-quarter rate movement means in terms of overall market direction, says the current environment can be described as a "market in transition around rate." Rates are increasing, he notes, but there is no capacity crunch that would be expected in a traditional hard market.
Recent reports on reinsurance property pricing have noted that rate increases that were quite significant in late 2011 have now moderated and even flattened out.
Ellis says in the insurance world, prices are still going up, especially on accounts with losses or with cat exposure. But he adds that the rate of increases is "starting to temper a little bit."
Explaining the possible reasons, Ellis says that in 2011, rates were negative in the first quarter, slightly positive in the second quarter, and then increasingly positive through the third and fourth quarters. In 2012, he says, the first quarter saw rate acceleration continue, but then moderate some in the second quarter.
He surmises that the moderation may have to do with year-over-year rates. Accounts did not see increases in 2011's first quarter, so increases overall were strong through 2012's first quarter. But accounts that did see increases in 2011's second quarter maybe did not get hit with another increase in this year's second quarter, as those accounts had already "taken their medicine last year" and did not need further adjustment.
Ellis says he expects the rate of uplift to moderate, if not flatten, through the third and fourth quarters this year.
He says this does not mean he expects a softening of the insurance market in the near future, but more of a "cooling off" of the rate of increase.
In general, Ellis says insurers have become more sophisticated in their use of analytics to assess property risks, allowing them to price risks differently than in the past. While this will not necessarily eliminate the traditional pricing cycle, Ellis says it could reduce the peaks and valleys of pricing increases and decreases.
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