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P&C Rates Continue Upward Trend

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The U.S. property and casualty industry continues to show rate increases, with a first quarter composite rate of plus 2%, according to MarketScout. The increase is in all lines except workers compensation, which had a rate decrease of 2%. The trend follows a 2% increase in the fourth quarter of 2017.

By coverage classification, business interruption, inland marine and professional lines all raised rates 1% higher than in the last quarter of 2017. Only EPLI rates moderated.
By account size, rates for medium accounts ($25,001 to $250,000 premium) increased from plus 2% in the final quarter of 2017 to plus 3% in the first quarter of 2018.
By industry group, service contractors, public entities, and energy accounts were assessed larger rate increases in the first quarter of 2018 than in last quarter of 2017. Transportation accounts had a quarter-over-quarter price decrease from plus 5 to plus 4%.
Richard Kerr, chief executive officer of MarketScout noted, “Automobile and transportation exposures continued to experience the greatest rate increases due to increasing expenses and adverse claim development. Insurers are struggling with this segment of our industry. Part of the problem is actual underwriting results, part is expense ratios, and in our view, a larger part is the uncertainty of the long-term prospects for the auto insurance industry.”

He noted that the questionable future of auto insurance could be impacting insurers’ willingness to invest in new safety concepts, pricing models and distribution alternatives. “Autonomous vehicles are going to change the auto insurance industry forever. Many tech firms are working hard to deploy new insurance alternatives, which reflect the lower claims frequency and severity anticipated by driverless or driver assisted trucking exposures. Traditional auto insurer opportunities will shrink unless they adapt their business model to get in the middle of the autonomous vehicle parade,” Kerr said.

 

2016 Ends with 1% Average Rate Reduction

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The year ended with few surprises in commercial insurance pricing in the United States, after 2016 started out with a composite rate decrease of 4%. In ms-barometerApril, rates began to moderate and continued reductions of 1% to 2% per month. The year closed with a composite rate reduction of 1%, according to MarketScout.

While the soft market has been going for 16 months, that period seems longer because for the first eight months of 2016, the composite rate was flat to plus 1% before dropping into negative territory, MarketScout said.

“We have been tracking commercial property and casualty rates since 2001. Generally, the soft or hard market cycles last at least three years,” Richard Kerr, CEO of MarketScout, said in a statement.

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“We expect more moderate rate reductions for the coming year for all but a few lines of business.” An increase in interest rates could accelerate rate reductions, he added.

By coverage classification, commercial property moderated in December, from down 3% to down 2%. Workers’ compensation rates dropped from down 1% to down 2%.

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EPLI and crime were the only coverages that saw rate increases—both lines of coverage went up by 1% to up 2%. The composite rate for all other coverages was unchanged.
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By account size, there were no changes from November to December 2016.
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By industry classification, contractors adjusted from down 1% to flat. Transportation accounts saw ongoing rate increases across the board, jumping from up 3% in November to up 5% in December.

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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.

P&C Insurers’ Profitability Up in First Half of 2015

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Low catastrophe losses contributed to a rise in net income for property/casualty insurers in the first half of this year, to $31 billion from $26 billion in the first half of 2014, according to ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America (PCI). Insurers’ overall profitability, measured by their rate of return on average policyholders’ surplus, grew to 9.2% from 7.8%.

“While Old Man Winter did his best to disrupt things in the Northeast during the first half of 2015, insurers overall incurred lower domestic catastrophe losses than they did during the first half of last year due to a relatively quiet tornado season and the slow start to hurricane season,” Robert Gordon, PCI’s senior vice president for policy development and research, said in a statement. “Insurers’ combined ratio and rate of return all improved in the first half of 2015, while premium growth and investment income remained relatively stable.”

Beth Fitzgerald, president of ISO Solutions noted, “Still, it’s important to note than U.S. catastrophe losses during the first half of 2015 were only slightly lower than the 10-year average. As the devastation caused by meteorological conditions associated with Hurricane Joaquin highlights, it’s crucial for insurers to remain disciplined in their underwriting and look at analytics to be ready not only for weather disasters but also for other major challenges the future may hold.”

According to the report, insurers’ combined ratio improved to 97.6% for first-half 2015 from 98.9% for first-half 2014, and net underwriting gains went to $3.39 billion from $237 million. Net written premium growth remained unchanged at 4.1 percent for the first half of 2014 and 2015.

Also in first-half 2015, earned premiums grew 4.0% to $247.5 billion, while losses and loss adjustment expenses (LLAE) rose just 1.8% to $171.3 billion. Other underwriting expenses rose 4.7% to $71.8 billion, and policyholders’ dividends were mostly unchanged at $1.0 billion. Net underwriting gains increased to $3.4 billion from $0.2 billion.

In second quarter, consolidated net income after taxes for the P&C industry rose to $12.8 billion from $12.1 billion in second-quarter 2014.

P-C_1Q results

P&C insurers’ annualized rate of return on average surplus increased to 7.6% in second-quarter 2015 from 7.3% a year earlier.

Net written premiums rose $5.5 billion, or 4.4%, to $130.6 billion in second-quarter 2015 from $125.1 billion in second-quarter 2014.