Low catastrophe losses, premium growth and increased competition strengthened the property and casualty industry's bottom line in 2013, but those same factors will create downward pressure on pricing in the coming year and create a continued, if uneven, buyer's market, says broker Lockton.
The P&C industry earned an underwriting profit of $2.3 billion in 2013, reversing underwriting losses of nearly $10 billion in 2012, and net written premiums rose to 4.5% in the first half of 2013, a 0.8% increase from the previous year. The combined ratio grew to 97.9% in the second quarter of 2013 from 94.8% in the first quarter, but marked an improvement from 103.2% in 2012.
Property rates in 2013 flattened some due to increased capacity, reduced reinsurance costs, low Florida catastrophe reinsurance costs, and light losses, says Lockton.
Middle-market property accounts saw rate decreases from 3% to 10%, which may steepen in 2014 if reinsurance renewals remain favorable. Large-market property accounts have been even more competitive.
Although the overall casualty market should expect flat to high-single-digit increases, says Lockton, casualty lines in 2013 were more strongly defined by company risk profiles, for example in workers' compensation, which saw rates increasing in several states.
"The broad casualty market has leveled, but it's not a classic soft market where all buyers can expect across the-board price cuts," says Mark Zwickel, Lockton executive vice president and CID manager in Los Angeles, in the company's 2013 P&C market update. "Good risks can earn a rate of decrease while risks with higher than expected losses will get a rate increase relative to their experience."
Several companies also changed their internal ratings systems to balance their portfolio spread, says Lockton. For example, to offset overexposure in workers' compensation, a carrier may make its rates "friendlier" in auto and liability. Markets are also underwriting industry groups more closely than in the past.
Risks with significant severity exposures, including energy and mining, are positioned to receive high-single-digit price increases, caused by few available primary or lead umbrella markets and no new capacity, Lockton says.
"Clients are managing through this by distinguishing themselves as 'best in class' in their market submission and by looking closely at retentions and attachment points," says Vince Gaffigan, Lockton executive vice president and director of risk consulting in St. Louis.
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