Abundant capacity keeps liability pricing downReprints
Abundant capacity and aggressive underwriting are making midyear renewals in the commercial liability insurance market more competitive.
“From a year ago, the market is more competitive,” said Mark Moitoso, vice president and general manager of national casualty at Liberty Mutual Insurance Co. in Boston.
“The casualty renewal market is more competitive compared to last year,” said Peter Wilson, CEO of Axis Insurance Co. in New York.
In some cases, commercial liability prices are dropping 10% to 15% at renewal.
“For good risks, you're seeing renewals down 7% to 10%,” said Frank Scott, senior vice president of USI Insurance Services L.L.C. in West Orange, New Jersey. A good risk, he added, has a loss ratio well below 50% and shows a commitment to safety.
“We are in a negative-rate environment for general liability for large accounts, and we are in a negative-rate environment for auto liability for large accounts,” said Pam Ferrandino, New York-based executive vice president and casualty practice leader at Willis North America Inc. “Therefore, when you look at the umbrella trend, which would sit above the GL and the (auto liability), we are in a negative-rate environment.”
The softer market is giving some buyers negotiating space.
“We saw flexibility and a willingness to recognize some need we have and work with us to make the policy and underwriting match our needs and our business model,” said Laura Peterson, chief risk officer of the University of Wyoming in Laramie.
For the most part, said Ms. Peterson, premiums were generally level when the university renewed its liability coverage in June , with increases tied to exposures such as more students or more activity in a certain areas. “Most of the premiums were relatively flat or small increases,” she said.
Accounts with greater losses, however, may see increases at renewal. “The more challenging risks are not going to get that benefit,” Mr. Scott said of accounts with loss ratios of 60% to 65% or higher.
Rates will increase “for more hazardous classes, as well as for accounts with adverse experience,” Mr. Wilson said. “From our vantage point, there is abundant capacity available to buyers. That being said, at this point in the cycle we would not view the rating environment as being "irrational.'”
“There's a lot of capital that's sitting on the sidelines, and people are trying to put it to use,” Mr. Moitoso said. “It's not just your traditional underwriters. There's capital from other places, whether it's from the investment community or offshore, that's driving the market.”
“It's the capacity. You have new players coming in,” including Berkshire Hathaway Specialty Insurance and C.V. Starr & Co. Inc., “and people need to generate revenue,” said Mr. Scott.
Some underwriters are expanding from areas such as workers compensation into liability areas such as general commercial liability, Ms. Ferrandino said.
“Production underwriters are hungry to write new business, so if you can't write comp, you're going to write other things,” she said.
“Certain markets are looking to selectively quote highly profitable business well in advance of the renewal date in order to prevent these accounts from being broadly marketed,” Mr. Wilson said.