2012 Begins With Rate Increases
BY PHIL GUSMAN AND MARK E. RUQUET
CATASTROPHE LOSSES in 2011 led to the U.S. P&C industry’s largest underwriting loss since 2002, ac-
cording to A.M. Best. And while the latest
MarketScout barometer shows that 2012
began with another month of commercial-
lines rate increases, Best maintains that a
true hard market is likely “at least a year
or two away.”
In a Feb. 6 special report on the U.S.
P&C industry’s 2011 results, Best says $44.1
billion in catastrophe losses for the year
helped drive net income down 49.2 percent
to $21.9 billion. In 2010, industry net
income was $43.1 billion and catastrophe
losses totaled $19.6 billion.
Underwriting losses are expected
to total approximately $33.9 billion
for 2011—the second consecutive year
of underwriting losses and the third-largest annual-underwriting loss ever,
behind 2001 ($56.4 billion) and 2002
($34.3 billion).
The industry’s 2011 combined ratio
climbed 6.5 points to 107.5. Catastrophe-related losses accounted for 10.1 points,
compared to 4.6 points in 2010. Reserve
releases shaved 2.7 points off of the 2011
combined ratio, down from three points
from reserve releases in 2010.
Best says it expects the impact of reserve
releases to lessen going forward: “While
there are select lines where reserving
strength remains, A.M. Best continues
to believe the overall industry’s previous
reserve cushion is largely exhausted
because of sizable reserve releases over the
past six calendar years.”
The ratings agency adds, “With
overall industry-reserve redundancies
expected to continue through 2012,
albeit to a lesser extent, the overall
reserve deficiency will continue
to increase, and core, undiscounted
reserves will remain inadequate.”
Despite the challenges in 2011, the
industry’s policyholders’ surplus declined
only 1.4 percent to $562.7
billion, Best says. In 2010,
policyholders’ surplus stood
at a record $570.4 billion.
momentum in January, but not as much
as in December. Rates were up 2 percent
in January for this line compared to 3
percent in the month prior.
By coverage class, small accounts
were up 1 percent, down from 2 percent
in December, while medium accounts
were up 2 in January compared to 1
percent in December.
Source: MarketScout.com
Large accounts were unchanged
(up 1 percent), while jumbo
accounts remained flat on a
month-to-month basis.
Responding to the
MarketScout survey, Meyer
Shields, a financial analyst
with Stifel Nicolaus, says
in an analyst’s note, “We
see insurers’ deteriorating
calendar-year results as
the primary catalyst for
rate increases, and we
expect these increases
to accelerate as favorable-
reserve development subsides.”
Best says its outlook for commercial
lines remains negative, while personal
lines and U.S. reinsurance are stable. NU
NUMBER OF THE WEEK:
$33.9 Billion
Expected approximate total for
underwriting losses in 2011—the
second consecutive year of underwriting losses and the third-largest annual
underwriting loss ever behind 2001,
according to A.M. Best.
