National Underwriter P&C magazine recently reported that the soft insurance market is showing no signs of reversing as abundant capacity combined with diminished demand keep downward pressure on rates. This is the seventh consecutive year of soft overall market conditions. At the same time, forecasters are calling for a more active than normal Atlantic hurricane season with fifteen named storms, eight hurricanes, and four “major” hurricanes.
Soft market conditions exist in a many different product lines:
As has been the case throughout much of the soft market phase, the report said, general liability was the most competitive line during the quarter, with the average premium falling 4.4 percent. The average property premium, which had been essentially flat over the past several quarters, fell 2.9 percent. The average workers’ compensation premium was down 2.0 percent, and average directors and officers liability (D&O) premium was off 1.1 percent. D&O average premium had been flat to slightly higher throughout 2009 due to rate increases in the financial institution sector, but those increases now have abated, according to the report.
Although rates are under pressure, insurers reported good results in 2009 and underwriters have not been pushing for higher premiums. Another way of interpreting this news is that insurers appear to be willing to compromise on pricing in exchange for volume or market share.
If lack of underwriting discipline is combined with higher than normal catastrophe claims in 2010, the overall industry could be looking at poor results for the year. Insurers that maintain underwriting discipline even at the cost of giving up market share should mitigate the damage and preserve capital for the harder pricing markets that inevitably return in periods following poor financial results for the overall industry.
Disclosure: The author owns shares of Berkshire Hathaway, a major provider of many lines of insurance through several subsidiaries, and also owns shares of other insurance companies.