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MarketScout: P&C Overall Market Still Soft

Re: National Underwriter


Posted on 06 Aug 2009

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MarketScout reported that the July composite rate for U.S. Property and Casualty insurance was unchanged from the previous month, staying at minus 6 percent.

"We are still in a prolonged soft market,” said a statement from Richard Kerr, chief executive officer of Dallas-based MarketScout, who offered the view that surplus lines insurers are now sitting on the sidelines during the rate downturn.

Mr. Kerr commented, “Many insurance brokers expected tighter terms and increased pricing after the July 1 treaty renewals. Generally speaking, it didn’t happen. July 1 renewals were a bit tougher for property cat risks but most reinsurance treaties were placed without much trouble.”

The MarketScout announcement noted that in 2008 for the June period rates were down 11 percent.

Discussing the surplus lines, non-admitted marketplace, Mr. Kerr reported, “Several major surplus lines insurers have decided to wait it out until the admitted market exits what is traditionally considered the surplus lines market.”

He said, “This strategy will be very wise if the market starts to turn and the larger admitted insurers begin restricting their appetite; however, if we have status quo, some surplus lines companies could lose significant market share which will be nearly impossible to replace. After all, most state insurance regulators require agents and brokers to use an admitted insurer if one is available, at any price.”

The only changes MarketScout found in pricing by industry class were for contractors and energy accounts. Rates moderated slightly for contracting risks.

Energy risks, the firm found, corrected more notably, adjusting from an average rate reduction of minus 5 percent in June to minus 3 percent in July.

Mr. Kerr, describing the energy sector, said: "The economic recession has significantly impacted the price of oil and natural gas. These commodities are off their 2008 highs by well over 50 percent. The resulting decrease in activity has significantly impacted the premiums received by insurers.”

He noted, “As long-tail claims mature, the ongoing premium flow is not going to be robust enough to generate acceptable returns at current rate levels. Thus, we expect continued rate adjustments in the energy sector with an overall rate increase by year’s end.”

By coverage class, general liability was found to have had the greatest rate reduction in July at minus 7 percent. Directors and officers liability was the least, at minus 2 percent.

For other sectors, rates were down 6 percent for workers’ compensation and professional liability; 5 percent for commercial property, business owners and commercial auto; 4 percent for business interruption, inland marine, umbrella excess and surety; 3 percent for employment practices liability and crime; and 2 percent for fiduciary.

By account size MarketScout said the decreases were: small accounts, up to $25,000, down 4 percent; medium accounts, $25,001 to $250,000, down 6 percent; large accounts, $250,001 to $1,000,000, down 6 percent; and jumbo accounts, over $1,000,000, down 5 percent.

By sector the report found manufacturing, contracting and service rates all down 6 percent; habitational, public entity and transportation down 5 percent; and energy off 3 percent.


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