2012 Property & Casualty Market Outlook
Key influences for changes coming this year and beyond
Commercial Property & Casualty Insurance Buyers can expect to see a continued upward trend in overall rates for the remainder of 2012 and beyond. Workers’ Compensation and Commercial Property coverages appear to be the lines of business most affected by both poor underwriting results over the past several years as well as diminishing capacity among insurers willing to write these lines of business at pricing levels consistent with recent years.
MARKET PRESSURE POINTS
Many factors have come together over the past several years to lead us into this transitional market where most clients can expect to see modest if not moderate rate increases in their renewal proposals. Among these influencing factors, the most prominent include:
- Depressed Investment Yields – Treasury yields have fallen significantly over the past several years. Translated, that means that insurers must now find a way to make an “underwriting profit” on their business and can no longer count on investment income to offset combined ratios over 100.0.
- Increasing Weather Activity – 2011 was an exceptional year for international catastrophes including the earthquakes and flooding in Japan and flooding in Australia and Thailand. Additional pressures on property insurers came from wild swings in weather in the US with an unusually high frequency of severe thunderstorms, tornados and flooding. Even a domestic earthquake on the East coast had to be factored into the results by year end.
- Deteriorating Loss Experience Pressuring Insurer Margins – Many factors have tightened insurer margins, including reduced operating income directly resulting from tough economic conditions, return premiums, and most importantly a pattern of reduced rates over the past several years. This, combined with the pattern in past years of insurers releasing excess claims reserves (to improve loss ratio results) to the point of no more redundancy in carriers’ overall reserves, puts the insurance market in a tight position. A return to profitability can only be achieved through increased rates and quality risk selection — the foundation of a profitable underwriting program.