National Underwriter - November 7, 2011

Rates ‘Improving,’ But Conditions
Not Quite Right for Market Turn

“We see rates continuing to get stronger in commercial,” noting a progressive increase in rates of 1.2 percent in the first quarter, 1.8 percent in the second quarter and 2.4 percent during the third quarter.

BY CHAD HEMENWAY AND PHIL GUSMAN WHILE EXECUTIVES on third-quar- ter-results conference calls say they are seeing improvements in the rate environment, Insurance Information Institute President Robert Hartwig believes the stars are not quite aligned yet for a market turn—and a recent report suggests the impact of rate increases in 2012 could be tempered by expectations of low investment yields.

Speaking to analysts on a conference call, ACE Ltd. CEO Evan Greenberg said September was the best month for pricing this year.

But some companies continue to write
irresponsibly, he noted: “They don’t know
any better. I’m convinced many of them
don’t know the difference between what’s
an adequate or inadequate price.”
Greenberg said the best companies “are
endeavoring to do what we do and show
discipline. And they are trying to press the
market to recognize a price that reflects
the risk.”
Thomas F. Motamed, CNA Financial
Corp.’s chairman and CEO, said during his
company’s third-quarter conference call,

ing underwriting and pricing discipline.

In past market-hardening periods, all lines of insurance were doing poorly and each contributed to rapid rises. That is not the case this time, he says.

“For instance, private-passenger
auto is not doing poorly, and that is
one-third of all premiums written,”
says Hartwig. “All lines are not con-
tributing to an overall market turn.
The overall magnitude of any turn
won’t be as strong as in the past.”
Meanwhile, an “Industry Update”
by analyst firm Keefe, Bruyette & Woods
“In a scenario where loss ratios improve
modestly while investment yields decline,
the net impact for most appears to be close
to a wash,” the firm said.

Making matters worse for insurers, KBW added that lower reinvestment rates “appear to be more of a certainty than improving loss ratios.” NU

[The best companies] are
endeavoring to do what we do
and show discipline. And they
are trying to press the market to
recognize a price that reflects
the risk.”

Evan Greenberg, CEO, ACE Ltd.

“The visibility of a cycle change is even more evident,” says W.R. Berkley CEO William R. Berkley, noting that prices during the quarter were up 3 percent from a year ago.

But Hartwig points out that many of the factors that need to be in place for a property and casualty market turn aren’t currently there—at least not enough to cause the type of sharp turn toward a robust hard market.

He says four criteria must be met for a market turn: sustained underwriting losses, material decline in surplus and capacity, a tightening reinsurance market and renew-

Thailand Floods Could Cost Insurers Billions

BY MARK E. RUQUET

OFFICIALS IN Thailand say insur- ance losses from months of flood- ing could cost insurers greatly, with some estimates running as high as $13 billion as floods reached industrial zones.

Most of the losses would be paid by Japanese insurers, according to one major insurance broker.

Sixty of Thailand’s 76 provinces have
been affected by flooding caused by heavy
monsoon rains beginning in July, accord-
ing to a report released by London-based
insurance broker Jardine Lloyd Thomp-
son (JLT).