Automobile and General Liability
Primary insurance rates in the commercial sectors have stabilized with underlying exposure stabilizing as well. The majority of general and automobile liability renewals renewed flat or with rate increases in the 1 percent to 5 percent range. Some favorable primary risks, however, continue to experience rate decreases in the single digits. The overall impact has been a slight increase in liability subject premiums in the low single digits. Underwriters of medium to large US liability businesses have been requiring more data than in the past. They are acquiring additional details on loss data and trends, safety reports and risk management practices. Direct commercial liability markets continue to show general improvement in their profitability as underwriting practices improve and increased portfolio analytics, such as predictive modeling, continue to be implemented.
The overall result is an insurance market that continues to favor consumers, which puts pressure on primary insurers and, as a result, reinsurers. Smaller carriers continue to struggle to meet financial objectives. Given these market pressures, primary rates are likely to increase only moderately through 2012.
The continued low interest rate environment, constrained return on equity and economic factors, particularly unemployment, continue to limit any material exposure growth on the liability lines. Business contractions, driven by global economic conditions, continue to put pressure on liability premium income growth. Meanwhile, loss ratios and less favorable frequency trends have begun to materialize in 2011. Overall, proportional reinsurance rates and terms, including ceding commissions, on portfolios exhibiting favorable loss experience, have remained flat. Excess of loss reinsurance has also remained flat, except for those cedents continuing to exhibit rate and subject premium decreases and/or unfavorable loss experience. Reinsurance capacity overall has increased slightly as more markets have sought to enter the casualty segments in attempting to further diversify their property reinsurance portfolios. This has been mitigated by the limited premium growth potential in this space as well as higher net retention trends by cedents having recently implemented various underwriting profitability initiatives.
There was little to no loss activity in this reinsurance market sector. There continues to be some activity in pursuing coverage in view of larger net lines and ERM strategies. Firm order terms for loss-free catastrophe excess of loss programs were flat to up 3.5 percent at the time of this writing – super-regional and specialty were slightly higher.
Notably, a couple of markets’ quotation behavior across the board was up on average year over year by as high as 10 percent. However, they continued at firm order terms. Those affected by losses are seeing price increases on a few bottom layers (for regional business). Overall, there was little change year over year, including capacity.
In the general treaty market, subject base exposure to premium flattened at the January 1, 2012, reinsurance renewal, after trending downward last year.
Umbrella & Excess
Primary insurance rates in umbrella and excess were flat to up 5 percent in 2011. The upward rate movement began during the latter part of the year.
Entering 2012, we expect continued rate improvement from flat to up 5 percent – depending on the exposure, size of the insured and loss activity. Individual accounts (and certain classes of business such as energy, transportation and some contracting business) could see higher-than-average rate increases. We are also still seeing rate reductions on attractive risks. With limited ability to generate investment returns, a number of years of primary insurance rate reductions, increases in exposure bases due to a slowly recovering economy and loss trends, carriers are beginning to push pricing higher.
Reinsurance capacity for renewals of proportional treaty was generally stable. Some reinsurers are reducing capacity while a few others have added some. Reinsurers are still very reluctant to provide support for a new transaction or a new operation. While there were no particular noteworthy losses in 2011, general treaty capacity for energy risks continues to contract a bit following loss activity in 2010. Ceding commissions have declined on average over the past three years, and in 2011, they were mostly stable depending on loss development in the older years. Portfolios showing loss development from older years outside of expected have led to some change in the ceding commission and other terms and conditions.
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Automobile and General Liability