The soft market has persisted for so long it would be easy to see firming rates as a cure all for the industry’s economic woes.

Yet new analysis from Keefe, Bruyette & Woods contends that the industry’s financial woes are far from over. The report, "Premiums in 2012: Don’t Look at Insured Exposure Growth for Much Help," says that while rate recovery will alleviate some issues, other factors such as mounting claims may counter any gains.

"We view higher rates as the main contributor to the industry’s expected mid-single-digit premium growth in 2012," the report states. "While higher rate is a positive for the industry, we expect loss cost trends to closely follow rate increases, resulting in little improvement in underwriting results. We expect our coverage universe to split into the haves and have-nots. Any rising tide around rates will not benefit everyone equally."

Among the have-nots, KBW says, are those lines of business most impacted by the macroeconomic issues. For example, sluggish job growth will continue to adversely impact workers’ compensation writers. "Workers’ compensation insurers faced steep premium declines when employers cut payroll (through layoffs and reduced hours), in response to the slowing economy," the report states. "Making matters worse, even when employment trends bottomed, many insurers experienced additional top-line pressure from audit return premiums, or premium that is returned to the employer—by the insurer—because actual payroll came in below the insurer’s estimates."

Irrespective of line of business, insurers need to realize that this market remains a zero-sum game and they will likely only grow at competitors’ expense. "We think the winners will be those firms that can use their top-quality franchise to take share," the report states.

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