BOSTON — The soft market for commercial lines insurance shows little sign of ending any time soon, a boon for insurance buyers, according to a recent report from The John Liner Letter.
work in advance, by starting renewals three months ahead and being diligent in providing underwriters with detailed submissions.
over 2008 – the financial markets
stabilized, the value of investments
recovered, and nature kept insured
catastrophe losses to a minimum.
However, the anemic economic re-
covery kept the market generally
soft. That softness pretty much pre-
vails now and will likely continue for
several more months, perhaps lon-
ger – because insurers have too much
supply chasing too little demand.”
“Most accounts can expect flat renew-
als or modest decreases of 5% to 10%
for their primary property and liability
insurance,” stated Robert Montgomery,
editor of The Letter. “Those firms that
do see their rates go up generally can ex-
pect only small increases of 5% or so.”
“The sooner you get a firm quote,
the better. More often than not, if
the incumbent insurer doesn’t want
to lose a particular account, the un-
derwriter will usually negotiate,” The
Letter noted.
Buyers will be looking for the best terms and conditions, however, since the market could be in a different place a year from now.
The past two years were not great years for the property-casualty insurance industry – or for most industries, for that matter, according to The Letter.
“Often, insurers will agree to broad-
en coverage, rather than decrease the
rate as much as they would have to do
otherwise,” commented Montgom-
ery. “Naturally, what an insurer might
be willing to discuss varies by insurer,
line, and account.”
Buyers are advised to do their home-
“Insurers had a bad year in 2008 – in-
stead of capital gains, they had both
realized and unrealized capital loss-
es, investment income declined, they
incurred substantial catastrophe loss-
es, and the implosion of the general
economy shrank their exposure bases,
reducing premiums,” said Montgom-
ery. “Last year wasn’t great, either,
but insurers saw a big improvement
The Letter commented that at the end of the third quarter 2009, policyholder surplus was about $490.8 billion, while insurers took in only $321.2 billion in net written premiums – 4.5% less than they received during the first nine months of 2008. Recovery of the value of insurer investment assets – so essential for the health of the industry – contributed to the increase in surplus. On an annualized basis, the ratio of net written premiums to surplus was 0.9 to 1. According to Fitch Ratings, the industry ended the year with a surplus of $500.4 billion and a premium-to-surplus ratio of 0.88.
“That means that property-casualty insurers have a lot of unused capacity – capacity that’s scrambling for the limited amount of available business. Until more of that capacity is put to use, the market will likely remain soft,” noted Montgomery.
That capacity could shift, The Letter observed. Should businesses increase production and sales and adding to payroll, that would lead to a higher demand for insurance. In addition, catastrophes could put stress on insurers or the industry could undergo further consolidation.
“Keep in mind that the industry’s capacity is not distributed evenly among insurers,” said Montgomery. “Some insurers do a better job than others of underwriting, managing expenses, providing service, investing, and so forth. So, it remains important to be vigilant in selecting an insurer.”
The Letter weighed in on several individual lines of insurance. In spite of the economic turmoil over the past
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