Commercial Insurance Prices Remain Level for Fifth Straight Quarter, According to Towers Watson Survey

Financial climate, overcapacity and a quiet 2009 catastrophe year help keep prices flat in first quarter; predictive modeling seen as aid in generating better pricing precision

NEW YORK, June 14, 2010 – A fragile global economy, excess capacity in virtually every line of commercial insurance and last year�s below-average catastrophic losses combined to keep commercial insurance prices flat during the first quarter of 2010, according to global professional services company Towers Watson’s (NYSE, NASDAQ: TW) most recent Commercial Lines Insurance Pricing Survey (CLIPS). The latest results mark the fifth consecutive quarter of little or no price increases after nearly five years of steady decreases.

The survey compared prices charged on policies underwritten by 37 participating insurance companies – representing about 20% of the commercial insurance market (excluding state workers compensation funds) – during the first quarter of 2010 to the prices charged for the same coverage during the first quarter in 2009.

This information is consistent with the pricing observed during all of 2009. Data for most lines indicate flat or small increases in prices, offset by price reductions in commercial property, directors and officers liability (D&O), and employment practices liability (EPL).

�It�s apparent that the market conditions are holding down price increases, while insurers – as they have for more than a year – continue to exhibit pricing discipline, given their concerns regarding the direction the economy may take,� said Bruce Fell, leader of Towers Watson�s risk consulting and reinsurance brokerage services to the P&C industry in the Americas. �Looking at D&O, the price increases we had seen in the past year in response to the financial crisis have disappeared, and pricing seems to be reverting back to pre-crisis price levels.�

CLIPS findings indicate that accident-year-to-date 2010 loss ratios deteriorated 5% relative to year-to-date 2009. This deterioration – based on only three months of information and, therefore, preliminary – compares to an estimated deterioration of 4% for accident-year 2009 over 2008. Early estimates of claim costs through the first quarter point to somewhat higher inflation than in 2009, which contributes to the larger loss ratio deterioration. Aggregate price change indications showed little differentiation by account size, as all were nearly flat.

Fell said he believes that, with current market dynamics, it is becoming harder than ever for property & casualty insurers to profitably write business without sophisticated risk selection and pricing. He says the strategic use of predictive modeling and other sophisticated pricing techniques – while not a cure for the industry�s current pricing woes – can better help insurers adequately price their business.

�As companies become more adept at identifying and capturing key factors and their relative influence on results, they can become more successful at selecting and pricing against their competition,� said Fell.

About CLIPS

CLIPS data are based on both new and renewal business figures – when available – obtained directly from carriers underwriting the business. This particular survey compared prices charged on policies underwritten during the first quarter of 2010 to the prices charged for the same coverage during the same quarter in 2009.

CLIPS participants represent a cross section of U.S. property & casualty insurers that include many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S. CLIPS� measurement of both pricing changes and loss ratio changes also sets it apart from other studies.

Participation in CLIPS has been increasing, as carriers believe it provides a more accurate picture of price changes and find it useful in setting assumptions for estimates of their claim liabilities.

The survey results track the differing trends in pricing across various regions, lines of business and account sizes on a quarterly basis. Historically, price level and loss ratio change results vary considerably by line of business and market segment.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at www.towerswatson.com.Financial climate, overcapacity and a quiet 2009 catastrophe year help keep prices flat in first quarter; predictive modeling seen as aid in generating better pricing precision