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P&C Rates Drop 2% in May

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The rate index for property and casualty risks was down 2% in May, the same as was seen in April, MarketScout reported.

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Accounts of more than $250,000 were priced more aggressively in May, at minus 3% compared to minus 2% in April.

“The market was stable in May with small movements in coverage, industry, and size classifications,” MarketScout CEO Richard Kerr said. “As we have seen in the past, larger premium accounts were priced more aggressively. Overall, the composite rate was down 2% in May, matching the rate for April.”

Acct size

According to the Insurance Information Institute:

A dominant factor in the P/C insurance cycle is intense competition within the industry. Premium rates drop as insurance companies compete vigorously to increase market share. As the market softens to the point that profits diminish or vanish completely, the capital needed to underwrite new business is depleted.

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In the up phase of the cycle, competition is less intense, underwriting standards become more stringent, the supply of insurance is limited due to the depletion of capital and, as a result, premiums rise. The prospect of higher profits draws more capital into the marketplace, leading to more competition and the inevitable down phase of the cycle.

By coverage classification, rates for property, business interruption, professional, auto, directors and officers, and surety all moderated 1% compared to April. Crime coverage increased from flat to plus 1%.

Coverage class

Industry classifications are examined to determine rate movement as measured when grouping accounts according to their SIC, or Standard Industrial Classification codes, MarketScout said.

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SIC codes are four-digit numerical codes assigned by the U.S. government to business establishments to identify their primary business, according to SICcode.com.

Industry class 3

The SIC codes are then incorporated into seven different segments. The only changes in rates in May versus April were in habitational, which moderated from minus 3% to minus 2%; and energy, which was priced slightly more aggressively at minus 3% compared to minus 2%. All other industry classifications were unchanged compared to April, MarketScout said.

Close of 2015 Sees More Rate Reductions

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Insurers’ competition and ongoing fight for market share resulted in a composite rate down 4% in December for the U.S. property and casualty market. But while market cycles are here to stay, the current cycles are tame compared to some previous years.Barometer In 2002, there was a mean average rate increase of 30% and, in 2007, a mean average decrease of 13%, according to MarketScout.

“Market cycles are part of our life, be it insurance, real estate, interest rates or the price of oil. Market cycles are going to occur without question. The only questions are when, how much and how long.” MarketScout CEORichard Kerr said in a statement. “While it may seem the insurance industry has already been in a prolonged soft market cycle, we are only four months in.

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The market certainly feels like it has been soft for much longer, because rates bumped along at flat or plus 1% to 1½% from July 2014 to September 2015.” He pointed out that the technical trigger of a soft market occurs when the composite rate drops below par for three consecutive months.

Rate Trend

MarketScout has been tracking the U.S. property and casualty market since July 2001. Kerr pointed out that during that time, the length and veracity of the market cycles has become less volatile in the last five or six years. “Thus, the impact of a hard or soft market in today’s environment may be 5% or 6% up or down,” he said. “Can you imagine how we would react today in a market such as that of July 2002 when the composite rate was up 32%? Or in December 2007 when the composite rate was down 16%? Underwriters today have better tools to price their products and forecast losses. Further, the chances of a rogue underwriter or company are greatly reduced by the industries’ checks and balances. There may be less excitement but there are probably far fewer CEO heart attacks.”

December 2015 rate summary by coverage, industry class and account size:
Coverage1
Industry class2
Account size3

U.S. Rates Continue Holding Pattern

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Insurance renewals in May showed premiums in the U.S. to be steady except when there were changes in the exposure base, according to MarketWatch. Rates are stable and most commercial accounts are securing renewal terms as they expire.

“A lot of business renewed in May 2015. Overall, rates largely continue in a holding pattern. It seems both insureds and insurers are content to move forward with little to no changes,” Richard Kerr, CEO of MarketScout said in a statement. “The only notable exception is transportation where the auto portion of these accounts is driving an average 2% increase.”

Business Owners Policies (BOP) were up from flat to plus 1% in May as compared to April 2015. EPLI coverage was down from plus 1% to flat, or 0% increase, MatketWatch said. By account size, rates matched April. Jumbo accounts (more than $1 million premium) continue to show the greatest reductions at minus 2%. Small (up to $25,000 premium) and medium ($25,001 to $250,000 premium) accounts were up 1%.

Contracting was the only industry classification to change from April to May 2015. Contracting was up 1%.

MarketScout, an insurance distribution and underwriting company headquartered in Dallas, compiles the Commercial and Personal Lines Market Barometers. The firm owns and operates the MarketScout Exchange at marketscout.com as well as more than 40 other online and traditional underwriting and distribution venues.

The National Alliance for Insurance Education and Research conducted pricing surveys used in MarketScout’s analysis of market conditions.

May 2015 rates by coverage, account size and industry class: