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Most buyers find favorable general liability insurance market

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There were no lumps of coal in most general liability insurance buyers' Christmas stockings this renewal season.

Instead, some buyers saw their primary general liability rates fall as much as 30% and their excess rates drop as much as 15% as insurers reported significantly improved financial results and competition remained fierce, liability brokers say.

Despite the rate decreases though, most buyers maintained status quo on their programs and did not purchase additional limits or buy-down retentions, experts say.

In addition, underwriting discipline remains as do most terms and conditions, insurers add, noting that while rates may be on the downward trend, it is not a free-for-all and there is still a long way to go before they would call it a soft market.

Not all buyers are benefiting from the softening conditions.

Accounts with adverse loss histories, poor loss-control programs and tougher classes of business—such as large railroads, trucking, energy and residential construction—continue to see rate increases in some cases, market sources say.

Overall though, most general liability insurance buyers found a favorable market this renewal period.

"The market for good risksÖis as competitive as I've seen it in years," said Sam Elliott, director of the Southern California property/casualty operations at ABD Insurance & Financial Services in Torrance, Calif. The upper middle market—those employers with up to 10,000 employees—is seeing rate reductions from 10% to 30% in primary general liability, he said. The decreases are not as big on the excess side, but rates are still down 5% to 15%.

While residential construction and transportation risks, such as trucking, remain a "pretty tight class of business with a limited number of markets willing to participate," every insurer has an appetite for good retail and manufacturing risks, he said. "You can get 10 different quotes from all A+ rated insurance companies that would just fall on the sword for that business."

"Generally speaking, everybody's enjoying a softening market on the primary casualty side" with rates falling in the area of 10% to 15%," said Anthony DeFelice, managing director of Aon Corp.'s complex national casualty division in New York.

"It's a little different story on excess and umbrella, but it's still a pleasant story," he said. Because only a "small handful of players" are willing to write the lead umbrella on national account risks, excess and umbrella rates are only flat to down 10%.

"There is no shortage of capacity unless you're a really ugly risk," noted Pam Ferrandino, national casualty practice leader for Willis Group Holdings Ltd. in New York. "Generally, we're seeing as a national trend anywhere from 10% reductions down to 25% reductions" in rates, she said.

Tougher classes of business, such as fleets of trucks or buses that have a high severity potential, are seeing rates ranging from flat to down 10%, she said.

Insurers interviewed by Business Insurance tell a more conservative renewal story.

"Overall, looking specifically at my portfolio, it's a mixed bag," said David Brosnan, president of ACE Casualty Risk in Philadelphia, which specializes in tough-to-place primary and excess liability exposures. "There are some risks that are down from a rate perspective, but there are some risks that are up as well," he said, noting residential construction and energy risks as two classes experiencing firmer rates this renewal season.

Louis Iglesias, president of AIG Global Risk Management Inc. in New York, said rates are down in the midsingle-digit range depending on the account's experience. However, "if the account warrants an increase on its own, in other words it's had bad losses, or the experience is poor or loss control programs are not up to par, then you still can see rate increases."

While the primary casualty excess and surplus lines market "has definitely seen a softening" throughout 2006, rates are "still somewhat strong," said Elaine Trischetta, executive vp with Arch Insurance Group in New York. "It's not plummeting and I wouldn't call it a soft market. I would call it a softening market."

"The encouraging news is that the important terms and conditions seem to be holding," she added.

The excess E&S market also has held "pretty strong," Ms. Trischetta said. While there have been some rate decreases, they have been "in the low- to midsingle digits. It has not been extreme at all and we're very pleased about that," she said.

"For the most part, our competitors still seem to be behaving rationally," added David Blessing, vp and chief underwriting officer for the eastern division of Liberty Mutual Group Inc. in Boston who underwrites primary casualty business for Fortune 1000 accounts. "There still seems to be discipline in the marketplace both on terms and conditions and limits as well as on price. We're seeing prices go both ways depending on how good the account is, and the better accounts are likely to get a better crack at better pricing," he said.

"I would call it a softening market," not a hard market, said Denise Morris, a San Francisco-based senior vp with Liberty International Underwriters who concentrates on excess and umbrella liability coverage. "Things have a long way to deteriorate before we get to what I would consider a soft market."

Ms. Morris said that while LIU has lost business on lead umbrella accounts with no excess attachments for up to 30% rate reductions, rates on umbrella coverage are down on average about 10%.

Jeff Hoke, director of risk management for NCR Corp. in Dayton, Ohio, saw 5% to 10% reductions in rates at his recent general liability renewal depending on whether it was primary, excess or international coverage.

"What I found, which was consistent with counterparts that I network with, is that the current market is reflecting single-digit reductions on clean accounts," Mr. Hoke said. If the account is not clean, insurers "will hammer you."

Despite the softening market, Mr. Hoke said he made no structural changes to NCR's general liability program. "We continually analyze our risk tolerance and stick to it. The market doesn't change our mind," he said. "This results in a consistent risk assumption and makes us less susceptible to market fluctuations."

Indeed, buyers "are not necessarily arbitraging the market" due to the soft market conditions, Aon's Mr. DeFelice said. "The more sophisticated buyers are satisfied with their retentions and are not opting to buy down to purchase cheaper insurance."

"Interestingly enough, we have not seen much pressure to go out with higher limits or lower retentions for that matter. Our programs are pretty much going at what they were previously," Liberty Mutual's Mr. Blessing said.