Monday, June 15, 2009


The smallest decline in commercial property & casualty (P&C) insurance prices in four years – less than 1% – provides increasing evidence that the soft market is reaching its end, according to Towers Perrin’s most recent commercial lines insurance pricing and profitability trends survey (CLIPS).

Prices for property and directors and officers (D&O) liability actually rose – albeit slightly – in the first quarter of 2009. Prices for large accounts – those with annual premiums in excess of $50,000 – also increased during the first quarter. This upturn in prices is not surprising, as large account prices eroded substantially more than middle-market and small accounts in 2007 and 2008. In contrast, small-account commercial prices continued their pattern of steady, but smaller, decreases.

None of the surveyed lines saw a deepening of price reductions from the fourth quarter of 2008 and, for lines where prices fell, all first quarter decreases were in the low single digits.

“Premiums in many lines may be falling faster than prices in some segments of the market – because lower payrolls, receipts, miles driven and other measures of exposures are declining due to the current economic climate,” said Stephen Lowe, managing director of Towers Perrin’s global property & casualty insurance consulting practice. “This reduced exposure from economic conditions may account for some of the disparity between the CLIPS survey results and the surveys published by the insurance brokers.

“More qualitatively, anecdotal evidence indicates that property insurance prices are continuing to rise in catastrophe-prone areas and declining slightly in non-catastrophe areas,” added Lowe. “This trend reflects the continuing high cost of property catastrophe reinsurance.”
Year to date through the first quarter, CLIPS data indicate that accident-year 2009 loss ratios deteriorated 11% relative to 2008. This deterioration comes on top of an estimated deterioration for accident-year 2008 of 9% over 2007. Increases in claim costs and the "earning" of the price decreases taken in the last four quarters both contributed to loss ratio deterioration for 2009.

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