Continued price cuts for commercial lines will more than offset any price increases for personal lines and contribute to an overall softer market, a new from
The report "The Data Suggest That U.S. Property/Casualty Market Conditions Should Stay Tough until At Least 2011," looks at statutory data for U.S. property/casualty insurers and finds some positive indicators amidst the ongoing soft market. The numbers show that industry surplus rebounded significantly–up about 12% to $509 billion at year-end 2009 from $455 billion at year-end 2008. The report attributes this to a strong recovery in investment values, a benign hurricane season, and insurers' previous actions to increase cash holdings by reducing dividends and buying back shares.
Going forward, S&P expects competition among both personal and commercial lines insurers to be fiercer than ever. “For the U.S. property/casualty industry, as the benefit of reserve releases tapers off, we expect a slight underwriting loss, with a combined ratio of about 102.6% in 2010 and 102.2% in 2011,” the report states. “Weather, reserves, and interest rates will continue to have a strong effect on underwriting and investments–the industry's two core sources of revenue.”
The report also states that premium growth will continue to flounder until a wider economic recovery occurs. “Rates for most commercial lines will generally remain flat or decrease slightly until the economic recovery gains momentum or a large loss event serves as a catalyst for significant rate increases,” the report states. “Absent a large loss event, we believe that a material improvement in pricing will likely not occur until at least mid-2011.”
Accordingly, carriers will have to maintain strict underwriting discipline to flourish, the report states. “Maintaining underwriting profits will be critical to maintaining financial strength because the investments and reserve releases will contribute less to earnings. Expense management is critical because increasing expenses could outpace revenue growth.”
