As had been the case for the first three quarters of 2011, standard commercial lines prices rose 3 percent in the fourth quarter, according to the most recent “Commercial Lines Insurance Pricing Survey” (CLIPS) from Towers Watson. Additionally, the report indicates earned price increases are beginning to offset portions of reported claim cost inflation levels.
“While modest, aggregate increases in prices continued, and more importantly, these increases accelerated in each quarter of 2011,” said Thomas Hettinger, Property & Casualty sales and practice leader for the Americas at Towers Watson. “We are now at a point where we can ‘call the pricing turn’ in the market.”
The turn is pushed heavily by increased prices for workers’ compensation and commercial property, which showed the largest quarterly increases—in the mid- to high-single digits. General/products liability closely followed. During the fourth quarter of 2011, workers’ compensation pricing continued to exhibit the increasing trend observed earlier in the year, after flat pricing during all of 2010. Prices for commercial property increased for the third consecutive quarter.
Specialty lines as a whole were relatively flat, as directors and officers (D&O) liability pricing showed signs of stabilizing. The D&O liability line had been the last remaining holdout with respect to soft market conditions, with significant price reductions reported in each of the prior seven quarters, according to Towers Watson.
While price increases were observed across all account sizes, mid-market accounts experienced the largest.
Carriers participating in the survey reported a 3-percent deterioration in loss ratios in accident-year 2011 relative to 2010. This indication is more favorable than the estimated level of 5-percent deterioration for the accident-year 2010 loss ratio over 2009, as earned price increases are beginning to offset portions of reported claim cost inflation, Towers Watson reports.
To get a better picture of 2011, the firm plans to analyze year-end reserve adequacy and releases. “We have seen signs of insurers reacting to the deteriorating loss ratios by raising prices, and we are still getting an understanding of how strong pricing discipline will need to be to overcome the trends in losses,” Hettinger said.
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