Property Casualty 360

August 27, 2012

P&C insurance rates are rising, and pricing momentum is expected to continue through 2012, but some observers say increases might moderate in 2013 and that the industry will not see a hard market marked by strong underwriting profitability.

In a Special Comment on Q2 earnings published Aug. 20, Moody’s Investors Service says insurers have seen strong earnings growth through the first half of the year, driven by lower catastrophe losses and increased premium growth. Moody’s says rate increases broadened in the second quarter relative to the first, leading to a 6-percent year-over-year increase in net written premiums, up from a 4-percent increase in the first quarter.

The ratings agency adds that companies may “turn up the dial on rate increases” as the year progresses due to an expectation of moderating reserve releases.

But while industry observers may agree that the market is “improving” for carriers, plenty of doubt remains as to whether the industry will see a true hard market.

In a separate report, Fitch Ratings says while P&C insurance rates should continue to rise into early 2013, a return to a sustained hard market is considered unlikely. The ratings agency expects continued competitive forces to dampen favorable pricing momentum as 2013 progresses.

Aside from competition, James Auden, Fitch’s managing director of P&C insurance, tells NU, “There is still a lot of capital in the market that needs to be put to use.”

A third report by firm Stifel Nicolaus indicates that current rate increases are not enough for insurers to see much in the way of underwriting profits. The report, which mainly outlines the industry’s reserve-release trends, notes that while insurer second-quarter conference calls point to improved pricing, few insurers reported rate increases “that currently match or exceed claim-cost inflation.”

Stifel Nicolaus went on to say that carriers’ return on equity will be challenged until “rate increases both accelerate from current levels and flow into earned premiums.”

The saying goes "take it one day at a time." Today, carriers are losing money even with all the workers comp rate increases. So today, insurance companies are waking up and they're dreaming about profits. But to make profits tomorrow, changes have to be made today. Today's changes are that they're going to review the losses on the submissions they're getting in and they're going to make sure they have more than enough premium to cover the losses. So brokers who have been writing direct and have built great relationships over the years with various carriers are now finding many of their renewals being rejected. Proof of this is that there's been a 50% increase in the assigned risk pool for premiums of $100,000 and above.

There is one easy solution for brokers to help their clients by obtaining refunds on past policies, savings on the current policy, and a better underwriting profile for future years. Workers comp premium recovery is a win-win solution for brokers to maintain their clients and win new business.