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Industry Challenges Remain Despite Rising P/C Rates

Property and casualty insurance rates are on the rise. But reports released in late July through August seem unsure of whether the pricing trend will build into sustained underwriting profits during a period of rising loss costs and low investment returns
August 23, 2012

Property and casualty insurance rates are on the rise. But reports released in late July through August seem unsure of whether the pricing trend will build into sustained underwriting profits during a period of rising loss costs and low investment returns.

Analysts say they're uncertain whether rising property/casualty insurance prices will lead to underwriting profits for carriers because the industry faces increasing loss costs and low investment yields. Insurers have adequate capital and conditions are not sufficient to create a traditional hard market, industry experts said. “We don’t know if the current market has enough momentum to get back to [the hard market of mid-2000s] because of competitive factors and the amount of capital deployed in the P&C business,” said James Auden of Fitch Ratings.

On July 31, The Council of Insurance Agents and Brokers released its second-quarter Commercial Property and Casualty Index Survey, which put average rate increases for the period at 4.3 percent. Small and medium size accounts saw rate increases of 4.3 percent and 4.9 percent respectively, compared to increases of 4.2 percent and 4.9 percent for the prior year’s second quarter. Large accounts were up 3.7 percent.

On August 7, MarketScout released its Market Barometer for July, showing that commercial lines were up by an average of 4 percent compared to the same month a year ago for the third month in a row, with all lines of business increasing by single digits. But observers are not in complete agreement about what the rate increases mean and how much momentum the current environment has. The issue is capital, says Robert Hartwig, president of the Insurance Information Institute. “The fundamentals in the market are such that they do suggest that pricing does need to continue to firm, but there are no catalysts in place for a traditional hard market,” Hartwig said

Experts Question if Rising Rates Will Mean Steady Profits (National Underwriter 8/16/12)

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