Net premiums written dropped 4.3% to $426.4 billion in 2009, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database. It marked the first time in A.M. Best's recorded history that net premiums have declined for three successive years.
Edward Keane, a senior financial analyst with A.M. Best, said a 1.6% decrease is projected for 2010. That cycle of decline is the result of downward pressure from competitive market conditions, excess capacity, weak macroeconomic conditions and alternative forms of risk transfer. Keane said the first-quarter 2010 results show a 1.2% decline to $105.8 billion, compared with $107.1 billion a year earlier. It marked the 10th-consecutive quarter of decline for the property/casualty industry.
High unemployment and declining payrolls also continue to chip away at the workers' compensation market, which now comprises a smaller portion of property/casualty premium than in past years.
In 2005, the workers' compensation line generated 11.3% of the industry's net premium, according to BestLink. Last year, it accounted for just 8.4%. The downward pressure is hitting hard in Florida and California, which account for 21% of 2009 direct premium in the workers' compensation segment. But direct premium for those two states has declined 53% since 2005.
Jeff Eddinger, a practice leader and senior actuary with the National Council on Compensation Insurance, said job losses in manufacturing and construction are hitting the line especially hard.
"Those are the areas with the highest rates," Eddinger said. "So when you lose payroll in those sectors, you tend to lose more premium than if it hit everybody in an office and clerical sector."
Earlier this month, NCCI President and Chief Executive Steve Klingel said carriers can expect little change in 2010 payrolls, and that premium increases were unlikely in 2011. Klingel said the manufacturing and contracting jobs represent 20% of the payrolls, but 40% of workers' compensation premium.
Eddinger said NCCI has decreased the base rates for workers' compensation by 3% and 4%. He said the claim experience and frequency has gotten better, and competitive pricing from carriers is also coming into the mix.
"So we're lowering the base, and they are also lowering their price off that base," Eddinger said.
Paul Kobyra, a senior vice president with Lockton Cos., said as companies report lower payrolls on renewals, some for the first time in many years, the base level of exposure has also tapered off. He also believes that companies are doing a better job of managing the medical portion of workers' compensation claims.
He was surprised net premiums were still declining given some signs that the market is firming, "especially in the smaller accounts."
He said June and July tend to be busy periods, but this summer is not as crazy as 2009. Kobyra said the market remains very competitive.
"What we're seeing is that some of our customers want to make sure there's quality," Kobyra said. "They just don't want to jump around. To jump around could be harmful. You don't want to buy the business for one year."