Marsh publishes U.S. Insurance Market Report for 2012
Marsh, the insurance broking and risk management firm, published a new report yesterday warning that it is more than likely that U.S. commercial insurance rates will increase for many lines of business in 2012.
In Navigating the Risk and Insurance Landscape: U.S. Insurance Market Report 2012, Marsh says that it is likely the U.S. will see an acceleration of property insurance rates in 2012 particularly for those insureds with past loss histories or with significant catastrophe exposures.
“Entering 2012, the U.S. insurance market has continued the trajectory developed during the fourth quarter of 2011 and is now in an obvious state of transition,” commented David Bidmead, Marsh’s U.S. CEO. “Although not classified as a ‘hard’ market, increasingly consistent signs of market correction are prevalent.”
Mr. Bidmead explained further that, “Carriers are expected to be extremely disciplined in their underwriting and seek rate increases where they can. Those insureds that are able to provide carriers with complete, accurate, and quality data will be best positioned to navigate a changing insurance market and effectively differentiate themselves from others seeking critical capacity for catastrophe risks.”
Major Findings by Marsh
During its client survey, Marsh found that half of its U.S. clients experienced property rate increases in the second half of 2011. The company also found that insureds with large catastrophe exposures and those with significant losses in 2011 typically saw rate increases of 10 percent or more during the fourth quarter. Marsh expects that these conditions will persist well into 2012.
With respect to primary casualty insurance pricing, its decreases moderated in 2011 along with general liability rates which ranged between fiver percent increases and five percent decreases in the fourth quarters.
For excess casualty, Marsh determined that lead umbrella rates generally were flat to up to 10 percent in the fourth quarter of 2011 and excess layers typically stayed flat or up to five percent. Marsh believes that market capacity is expected to shrink in 2012 for certain risks.
As for workers’ compensation rates, Marsh expects a continued firming of the market in 2012 which it says will be driven by higher underlying claims and medical cost inflation. Marsh also cautions that rates could be affected by the growing number of states pursuing legislative reforms in order to control their medical care costs.
Marsh also sees a modest firming of the D&O liability market because of a lack of profitability which may pressure insurers to seek flat renewals or small increases. The company also sees litigation risk affecting this market related to the Dodd-Frank Wall Street Reform and Consumer Protection ACT, the Foreign Corrupt Practices Act and the continually high rate of mergers and acquisitions.
And with respect too errors and omissions insurance, Marsh sees rates to continue to be flat to slightly up in 2012. It points to recent court decisions which point towards more privacy and cyber exposures for U.S. companies in particular data breaches and hacking incidents.
Marsh’s Key Takeaways from the U.S. Insurance Market Report
U.S. Property/Casualty Industry
- The U.S property/casualty (P/C) insurance industry was heavily affected by a record-setting catastrophe (CAT) year, with more than $105 billion in insured losses.
- Losses had a minimal affect on the industry’s capital position, but impacted overall earnings.
- Insurers are expected to exercise increased discipline in underwriting going forward as the slow economic recovery and low interest rates affect profitability.
Major Coverage Lines
- The transitional property market continues for U.S. insureds, although not classified as “hard,” a firming of the market appears to be underway.
- Property insurance rate increases are likely in 2012, with the rate of increase expected to accelerate as the year progresses, especially for insureds with significant CAR exposures and/or recent or difficult loss histories.
- Insureds should be prepared for a transitional market and prepare complete, accurate, and quality datea to be best positioned at renewal.
- Many signs point to a correction of the primary casualty insurance market, but a fair amount of competition remains; overall pricing decreases moderated in 2011.
- The continued deterioration of the workers’ compensation market is expected to continue in 2012.
- In the excess casualty market, capacity will likely shrink for certain risks and the renewal process will likely take longer.
Financial and Professional
- The primary directors and officers (D&O) liability insurance market is expected to firm modestly in 2012.
- Insurers and insureds will continue to face tax compliance and regulatory challenges associated with global D&O programs.
- On average, employment practices liability insurance (EPLI) rates decreased in the low single digits at the end of 2011 and are likely to remain generally flat in 2012.
- Commercial errors and omissions insurance rates are expected to be flat to slightly up in 2012 with capacity likely abundant and competition plentiful, especially on excess layers.
- The fidelity/crime insurance marketplace is expected to remain stable throughout 2012, with capacity plentiful and renewal pricing flat to slightly down.
Looking ahead to 2012, Marsh says:
- The U.S. P/C industry faces continued challenges in 2012.
- Investment returns are likely to be modest, if not flat, in 2012 as interest rates are expected to remain low.
- Insurers can be expected to focus on underwriting discipline in an effort to achieve risk appropriate rates. Underwriting profitability will be crucial to maintaining financial strength as investments returns and reserve releases are not expected to support earnings to the level they had in the past.
- Insurers are likely to focus on underwriting profitability in combination with pricing adequacy.
- Overall, the P/C industry remains quite strong, both financially and fundamentally.
- Insurers’ profitability will once again be pressured in 2012 given the slow economic recovery, low interest rates, and an expected reduction in reserve releases.
- Management will be under pressure to generate returns to meet their cost of capital.
- Nonetheless, P/C insurers should be expected to stay focused on fundamentals in 2012: efforts to protect their balance sheets, including pricing adequacy and underwriting discipline, capital planning, and capturing catastrophe exposures in preparation for the possibility of another year of large scale catastrophe losses.