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Casualty insurance buyers seeing rate increases

Posted On: Jan. 8, 2012 12:00 AM CST

Buyers of primary and excess casualty insurance are seeing slight increases in rates, but the market for high-quality risks within commercial general liability lines is still competitive, industry observers say.

As CGL rates have been decreasing since 2004, buyers will see little deterioration in rates as levels moderate, with some classes increasing in price by 2% to 8%, experts say.

Terms and conditions remain relatively flexible—but insurers are beginning to tighten those as well, experts say.

While capacity is plentiful, carriers are coping with low investment returns and eroding combined loss ratios, and are showing signs of tighter underwriting in casualty lines.

High-quality, top-tier risks within primary CGL lines can expect competitive pricing. But high-hazard risks—such as nanotechnology, habitational real estate and life sciences—with poor loss histories may see rate increases into the low double digits, experts say.

James Stenstrom, director of risk management at Roundy's Supermarkets Inc. in Milwaukee, said CGL rates were flat during his last renewal. “I buy it on an excess basis. More or less, there was really no change in the pricing,” he said.

Terms and conditions remained flexible, Mr. Stenstrom said, noting that he didn't have any difficulty placing the more complex risks that he works with, such as professional liability insurance for druggists.

The primary and excess casualty market outlook is very different from a year ago, said Stephen Truono, vp of global risk management for Starwood Hotels & Resorts Worldwide Inc. in Stamford, Conn. This year, he said, underwriters are holding the line, whereas last year they were waiting for it to firm.

“I think it varies by account and it varies by experience, but clearly accounts with losses are going to see increases—I would venture a guess potentially up into the low double digits. Clean accounts, good accounts, are going to be zero to plus one or two, three points, maybe five points,” Mr. Truono said.

Rate reductions may still be granted, Mr. Truono said, but they're probably going to be rare and relationship-driven.

Moving into 2012, there is “no real change in the general liability line,” said Kevin Brogan, managing director and national practice leader for Wells Fargo Insurance Services Inc. in Chicago. “But if you go to the lead umbrellas, the typical $25 million, I would say it's up about two points on the overall book of business,” he said.

Key factors for the rate change for casualty lines is related to poor investment returns on long-tail liability risks and because “the excess book is running pretty hot as far as combined loss ratios.”

Combined ratios for insurers were more than 110% in 2010, “and I'm sure 2011 will be even a little worse,” said Gary DelBuono, senior vp of commercial markets and general liability, product management, for Liberty Mutual Group Inc. in Boston.

Combined with other lines of insurance such as property and workers compensation, “the industry has to start seeing some increases,” he said.

Arthur J. Gallagher & Co. expects combined ratios for insurers to be between 115% and 120%, and maybe higher in some cases, said John A. Durkin, Chicago-based area chairman for Chicago, Michigan and Indiana at Itasca, Ill.-based Arthur J. Gallagher Risk Management Services Inc.

Plentiful capacity coupled with eroding combined ratios is causing a balancing effect for insurers, experts say.

“They're just trying to put some discipline to their underwriting,” Mr. Durkin said. “Right now, indications are that the carriers are going to maintain that discipline, they're going to continue to get that single-digit increase. If they do that, I think we'll stay in that range for the rest of the year,” he said.

Tracey Caffrey Ant, managing director for Marsh Inc.'s primary casualty group in New York, said clients are asking the brokerage to market their programs for alternatives.

“Based on early discussions with incumbent underwriters, if our discussions with our clients are such that there will be a significant increase without flexibility for a program structure change, the decision will be made to tap into market,” she said.

Making sure buyers of insurance have solid underwriting data is critical when talking to underwriters or exploring other markets, Ms. Caffrey Ant said.

“Because we are in the market more...we are really emphasizing to our clients the importance of having the details of their profile readily available in a package of information that we can articulate to the carriers in the best light,” she said. Some of those details should include risk exposures, safety programs and loss trends, she said.

Moving forward, Mr. Stenstrom of Roundy's said CGL rates in 2012 are trending upwards. “I can't imagine it being flat...especially as the combined ratios are deteriorating as they have with expense increases and poor performance on investment income,” he said. “You're not going to see a decrease—that I would bet the house on.”