P/C Market Pricing Shows Signs of Bottoming Out in Fourth Quarter 2008: CIAB

Thursday, Jan. 22, 2009 – Commercial property/casualty market premiums showed definite signs of leveling off in the fourth quarter of 2008 across small, medium and large accounts and for most major lines of commercial business, according to The Council of Insurance Agents & Brokers’ Commercial P/C Market Index Survey.

“We see evidence in the fourth quarter that premium rates eased as insurers tried to hold the line on pricing. It’s still a competitive market, but we think this may signal the bottom of the soft market, following six years of steady decline. We will see if this trend continues in the first quarter of 2009 as price increases in the reinsurance market begin to trickle down and as the full impact of the economy and market conditions comes home to roost on insurers’ bottom line,” Council President Ken A. Crerar said.

During the fourth quarter, 43 percent of the agents and brokers responding to the survey reported that premiums for small accounts were down 1-10 percent, with 35 percent reporting no change in premiums compared with the third quarter. For medium accounts 50 percent said premiums were down 1-10 percent while 17 percent saw decreases in the 10-20 percent range. Eighteen percent said there was no change in rates compared to the last quarter.

Premiums for large accounts saw more slippage, but not as much as the third quarter. Forty-one percent of respondents said rates declined 1-10 percent. Twenty-one brokers said rates dropped 10- 20 percent and 17 reported no change in rates since the third quarter.

Directors and Officers premiums saw the most upward movement with 17 percent of respondents reporting a 1-10 percent increase for the line, while 36 percent reported no change and 21 percent said rates declined 10- 20 percent.

An analysis of The Council’s survey findings by Barclays Capital Equity Research said premiums for the average commercial account declined 6.4 percent during the fourth quarter. For large accounts, the rates were down 8 percent; for medium accounts, renewal premiums 7.1 percent compared with the third quarter; and for small accounts, the renewal premiums averaged a 4.2 percent decline.

Average 4Q08 Commercial Rates Decreased 6.4%

Source: Council of Insurance Agents & Brokers. Chart prepared by Barclays Capital Equity Research.

According to the survey responses, many said there were no significant changes in rates since the third quarter.

“We have not seen any significant changes in terms and conditions, but accounts with some loss history are being looked at harder,” one broker reported. Another broker said, “underwriters are looking for flat renewals.” Yet another remarked, “[Carriers are] enhancing terms and conditions in order to justify holding pricing rather than reducing on renewal. [Carriers are] trying to lock up renewals early on with slight reductions.” While another said, “Pricing and terms (but not retentions) are tightening up over 3 months ago.”

A number of brokers still saw a competitive market last quarter, but not one in free fall. “Competitive pricing continues, but overall rate decreases are lower,” said one respondent. “Really depends on the risk,” said another. “[There’s] still a lot of competition for new business from the carriers. Underwriters are trying to hold the line but competitors [are] still undercutting pricing to write the account.”

There also are signs that the financial crisis worries some carriers. “Financials are a problem in most industry segments. Carriers are asking for them more frequently and they are generally not looking very good,” a broker remarked.

Pricing in coastal regions is posing some problems as well, brokers reported. “Coastal Texas property including Houston is tightening.”

“Anything with windstorm or higher limits is a problem.”

The survey also revealed the fall-out of the economic crisis on insurance buyers. Fifty-nine percent of survey respondents said customers were cutting back on insurance.

As for what keeps the brokers awake at night, price competition remains on the top of the worry list, followed closely by insurer solvency and competition with other players in the financial services market.

The economic crisis remained the top political issue facing the country today, with 98 percent listing it their number one concern. The budget/trade deficit, health insurance reform and foreign policy, respectively, were among other top concerns.

Click here to see the full survey results.

About CIAB

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 place 80 percent of all commercial property/casualty premiums in the United States and administer billions of dollars in employee benefits accounts. www.ciab.com.