Commercial P/C Premiums Fall in Third Quarter

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.

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 Crerar said. “These are very uncertain times.”

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 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 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 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.

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.

Click here to view the full survey results.