July 1 renewals in the US casualty lines overall continued to operate in a soft pricing environment, with little change from renewals earlier in the year. Commercial primary casualty pricing continued to decline during the first half of 2011, albeit at a slower pace than 2010. Of all the casualty lines, rate hardening on a relative basis has been more evident in workers compensation. General liability rates remain flat. Subject premium base reductions for many of the casualty lines have begun to slow and stabilize and, in some cases, increase, as a result of the recovering economy.
Primary rates for excess umbrella coverages were relatively flat, on average, with some individual accounts still experiencing some rate reductions of up to 5 percent. However, in certain classes and account-specific situations, the market saw some rate increases. Exposure bases have stabilized since last year, when we saw larger reductions in premium due to exposure reduction that resulted from the economic recession. Reinsurance capacity for the business has contracted year over year. Along with original rate movement, the main driver is energy exposure. Since the Japanese earthquake event and other catastrophe events, the reinsurance market has stabilized somewhat, with reinsurers renewing existing transactions at roughly expiring terms. Overall, the reinsurance market still had a more pessimistic view of the profitability of the original business.
Umbrella and excess loss ratios trended upward, on average, for large-account lead umbrella business. This occurred during the past few years as older accident years developed further. This drove some increased pricing on this business, recently. Small and middle market standard accounts experienced stable loss ratios through the cycle, in many cases, due to minimum premium redundancy. The Bermuda excess liability market experienced loss activity during the last year. As a result, insurance carriers reduced gross limits exposed by account and also raised rates on certain classes of business – in particular, energy risks. Insurance carriers closed operations, reducing available limit to the market.
Since the recent property loss events, reinsurance proportional capacity has stabilized. Reinsurers are encouraged by the recent reduction in insurance capacity and stabilization in primary rates. Reinsurers will continue to be judicious with capacity until there are more concrete signs of market improvement.
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