Statistical Snapshots

HAVE WE FINALLY REACHED THE BOTTOM??? And the answer:…..MAYBE!!! The current consensus appears to be "base rates will firm but don't expect a hard market". As one industry observer recently put it: "we've hit the bottom and we may see some float in the tide".

These sentiments were echoed by Ken A. Crerar, President of The Council of Insurance Agents and Brokers (CIAB), in the CIAB's third quarter Commercial Market Index Survey. In the survey, Mr. Crerar stated: "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."

As can be observed from the accompanying charts, although it was ever so slight, there was an uptick in the premium rate change trend lines as rates continued to decrease at a more modest pace period over period. While we are far from a consensus positive number, period over period rate changes crept ever so slightly closer to positive territory according to the third quarter CIAB study.

Respondent brokers reported that the average premium decrease for all commercial accounts, regardless of size, was 11.0% during third quarter; a modest decrease from the 12.9% posted for the prior quarter and a material change from the 13.5% posted for the first quarter. Study participants reported that medium and large accounts on average decreased by 13.2% and 12.1%, respectively, while the average small account premium was down 7.8%.

Although nowhere near positive period over period changes, the study results do indicate a move in the direction of a hard market. Given that we are now approaching our 5th consecutive year of soft market conditions, any let up in status quo is a welcome change.

CIAB study participants reiterated the continued existence of lax underwriting conditions, increasing competition for "good" accounts and a willingness on carriers' parts to do just about anything to gain and retain premium volume. According to one broker: "Conditions remain very competitive. The impact of the subprime crisis and natural catastrophes has not yet triggered a return to pricing discipline". This opinion was second by another respondent broker who stated: "premiums are still suppressed even for tougher risks due to the amount of competition. Only a few carriers, willing, able to sit out and wait for rates to increase." Yet another broker stated: "competition continues unabated despite the credit crisis".

However, a broker from the southeast appears to be seeing a dim light at the end of the proverbial soft market tunnel: "the market is beginning to stabilize. 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 charts below were compiled from CIAB survey data and reflect that during the third quarter, average premium rates decreased by a slightly decreasing amount versus the rate changes posted over the previous few quarters.

Figure 1 (click to enlarge)

Figure 2 (click to enlarge)

Only time will tell if we really have turned the corner but for now, given what's been happening as of late on the macro economic front, let's find solace in those indicators that are finally pointing to rate stabilization.

Source: Council of Insurance Agents & Brokers' Quarterly Commercial Insurance Market Index