Commercial P/C Premiums Continue to Drop in Third Quarter
October 2008
Commercial property/casualty premiums continued
a downward slide during the third quarter of 2008, but there were suggestions
the market decline may have leveled off, at least between July and September,
for small and mid-sized accounts, according to the latest Commercial P/C Market
Index Survey by The Council of Insurance Agents & Brokers.
by
The Council of Insurance
Agents & Brokers
Washington, D.C.
Because the survey was taken at the beginning of October, the full impact
of the financial crisis and the near collapse of insurance giant AIG was not
reflected in the findings, and the fourth quarter may tell a different story.
"We won't know until January 2008 renewals what toll the economic crisis has
taken on the industry in general. What we do know is that investment income
is down dramatically, carrier profitability is being eroded, net underwriting
losses are higher and combined ratios are inching up over 100. How long carriers
can maintain price cuts without damage to their financial health is anybody's
guess," Council President Ken A. Crerar said. "These are very uncertain
times."
The Council represents the leading domestic and international commercial insurance
agents and brokers who annually write more than 80 percent of the commercial
property/casualty premiums in the United States and administer billions of dollars
in employee benefit accounts.
During the third quarter, 69 percent of the commercial
agents and brokers responding to the survey reported that premiums for their
small account renewals were down only slightly—10 percent or less—compared
with similar renewals during the second quarter, including 20 percent who reported
no change. Fifty-three (53) percent of the respondents said their medium account
premiums were down 10 percent or less compared with second quarter renewals,
including 7 percent reporting no change.
Premiums for large accounts, which
escalated the most and the fastest during the hard market cycle, were still
dropping, the survey showed. Twenty-nine (29) percent of the respondents said
their large account renewal premiums were down up to 10 percent compared with
the previous quarter, while 8 percent reported no change. Thirty-five (35) reported
renewal premiums down 10-20 percent, and 18 percent said premiums were down
20-30 percent compared with the second quarter.
An analysis of The Council's
survey findings by Barclays Capital Equity Research said premiums for the average
commercial account declined 11 percent during the third quarter. For large accounts,
the rates were down 13.2 percent; for medium accounts, renewal premiums dropped
12.1 percent compared with the second quarter; and for small accounts, the renewal
premiums averaged a 7.8 percent decline.
Click here for
Average 3Q08 Commercial Rates Decreased
11.0%
According to the survey responses, competition remains strong.
"Conditions remain very competitive. The impact of the subprime crisis and
natural catastrophes has not yet triggered a return to pricing discipline,"
one broker responded.
Another broker said carriers have a "slightly broader appetite, willing to
write additional lines of coverage, such as workers compensation and umbrella."
"Premiums are still suppressed even for tougher risks due to amount of competition.
Only a few carriers willing, able to sit out and wait for rates to increase,"
commented another.
But another broker saw some leveling of rates in the third quarter.
"The market is beginning to stabilize," a broker from the Southeast said.
"Great accounts with excellent loss histories and above average data can still
get reductions. However, for accounts that do not fit into the above category,
underwriters are beginning to ask for higher retentions and not really willing
to drop price as dramatically as before."
The economic crisis also may be driving more claims activity.
"The economy is causing more filing of claims on certain classes of business
such as construction which is causing more negotiation on those accounts," one
agent observed.
Asked their top three industry concerns, the brokers responded price competition/excess
capacity, insurer solvency and competition among brokers. They listed their
top three political concerns as the economy/credit crisis, the budget deficit
and foreign policy.
Some survey respondents reported that the recent government rescue of insurance
giant AIG was spurring new competition for commercial business, but there was
general agreement that the sour economic conditions and Wall Street meltdown
at the end of the third quarter had not yet affected the market.
"Conditions remain very competitive. The impact of the subprime crisis and
natural catastrophes have not yet triggered a return to pricing discipline,"
said a broker from the Northeast.
"Competition continues unabated despite the credit crisis," a Midwestern
agent agreed.
Founded in 1913, The Council is the premier association for
commercial insurance and employee benefits intermediaries. The Council represents
the leading commercial brokers and agents in the United States and abroad. Council
members annually write 80 percent of all commercial property/casualty premiums
in the United States and administer billions of dollars in employee benefits
accounts. www.ciab.com.
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