Marsh: U.S. Casualty Rates Increased in First Quarter 2012

Rates for primary casualty lines—general liability, workers’ compensation, and auto liability—firmed in the fourth quarter of 2011 and the first quarter of 2012, in keeping with market trends. In fact, average premium rates for all lines increased in the first quarter of 2012. ??Insureds with more difficult exposures or adverse loss experience will likely face more significant increases at renewal. Additionally, there is increased upward pressure on rates for guaranteed cost workers’ compensation and lead umbrella programs. However, barring adverse loss experience and any further catastrophic events, rate increases are expected to level off at midyear.

Source: Source: Marsh | Published on May 15, 2012

General Liability

Despite upward pressure in this challenging market environment, the general liability marketplace (loss sensitive and guaranteed cost programs combined) remained relatively soft through the first nine months of 2011: Median quarterly premium rate decreases ranged from 1.2 to 2.7 percent, while the average decreases ranged from 3.3 to 5.3 percent. The transition began, however, in the fourth quarter, with a deceleration in rate decreases, and continued in the first quarter of 2012, when the average rate rose 0.5 percent with the median flat.

Workers' Compensation

Workers’ compensation premium rates (loss sensitive and guaranteed cost programs combined) began to experience upward pressure on rates in the third quarter of 2011, ending a period of declining rates. The median quarterly premium rate remained flat for the second half of 2011 and increased 1.6 percent in the first quarter of 2012; average rates increased 3 percent in the same time period. Insurers are seeking rate increases in part due to a difficult year in 2011—A.M. Best predicts the combined ratio to exceed 118 percent, the worst levels seen in over a decade—as well as growth in the frequency and severity of claims.

It is important to note that firming rates are more pronounced in certain geographies, particularly in larger workers’ compensation states such as New York, California, and Illinois.

Auto Liability

Rates for auto liability programs (loss sensitive and guaranteed cost combined) renewed in a tighter range than other casualty product lines over the last 15 months. With the median premium rate change flat for four out of last five quarters, and averages relatively close to constant, the auto liability market has been the most stable among the casualty lines. However, like the rest of the casualty marketplace, average premium rates firmed in the last quarter of 2011 and the first quarter of 2012, posting 1.1 percent and 1.7 percent increases, respectively.

Umbrella/Excess

Rates for umbrella/excess insurance programs (price per million for total program) showed signs of firming well before those for the primary casualty lines. Average rates for umbrella/excess have trended upwards each of the last three quarters: Rates increased 0.8 percent to 2.4 percent. Median rate changes ranged from flat to increases of 0.9 percent in the last nine months.

Mid-excess layers (i.e., excess of lead umbrella up to $100 million) continue to renew with rate increases, while higher excess layers are still competitive due to an oversupplied market. Anecdotally, many lead umbrella renewals stayed with incumbents in the first quarter of 2012—despite rate increases—primarily because competing insurers are unable to match the incumbents’ expiring attachment points and terms and conditions.