Most Recent Hard Market May Be Past Its Prime

Over the period 1989 through 2001, the property/casualty insurance marketplace saw direct written premium grow from $228 billion to nearly $362 billion. This represented a compound rate of increase of approximately 4 percent per year. Over that same period, direct losses incurred grew from $149 billion to $237 billion. This also represented a compound rate of increase of nearly 4 percent per year. However, the hard market was introduced during 2001 and assuredly arrived by the end of 2002. Calendar year 2001 direct written premium was approximately 11 percent above the 2000 level. Calendar year 2002 direct written premium was $413.5 billion, an increase of over 14 percent over 2001. In contrast, 2002 losses increased less than 2 percent from the 2001 level. Calendar year 2003 direct written premium was $451 billion, a 9 percent increase over calendar year 2002. Yet, 2003 direct incurred losses were virtually identical to the 2002 level of $241.4 billion. The 14 percent premium increase in 2002 and the more moderate 9 percent premium increase in 2003 may signal the maturity of the hard market. With incurred losses for calendar years 2002 and 2003 relatively flat and only marginally above the 2001 level, the gap between direct premium written and direct losses incurred may have peaked.

This article and the graph were prepared and submitted by Joseph L. Petrelli, president, and Barry J. Koestler II, CFA, senior consultant, chief ratings officer, at Demotech Inc. (www.demotech.com).