Chubb Says Commercial Renewal Rates Rose 6% in Q4, Up From 4% in Q3

By | January 30, 2012

Chubb Corporation said its commercial insurance renewal rates were up 6 percent in the 2011 fourth quarter, as the pace of renewal rate increases continues to accelerate. Chubb also said it secured renewal rate hikes in professional liability lines for the first time in two years.

“We are pleased that Chubb Commercial Insurance (CCI) average U.S. renewal rates were up 6 percent in the fourth quarter. Rate momentum continues to build as evidenced by the fact that the fourth quarter’s 6 percent compares to the 4 percent we reported in the third quarter, 2 percent in the second quarter and flat in the first quarter,” said Paul Krump, Chubb’s president of commercial and specialty lines.

‘Rate Momentum Continues to Build’

Krump made his remarks during an earnings call last week. Chubb reported $452 million in net profit for the 2011 fourth quarter, a 27 percent decline compared to the previous year. The company’s annualized operating return on equity was 13.1 percent in the quarter.

Commercial insurance retention for the fourth quarter was 85 percent, the same as in the third quarter, Krump said. The new-to-lost business ratio was 1.1:1, slightly higher than the third quarter and a little lower than the average for the year.

Even more encouraging, he said, is the fact that Chubb Commercial Insurance has secured U.S. renewal rate hikes in each line of business in the fourth quarter. “Monoline property rates increased the most, reaching the double-digit mark, followed in order by general liability, worker’s comp, excess umbrella, package, commercial automobile, boiler and marine,” Krump said.

“Also indicative of the improving pricing environment is that only 10 percent of the Chubb Commercial Insurance business we renewed in the fourth quarter received a rate decrease, compared to about 50 percent in the fourth quarter of 2010.”

In the fourth quarter of 2011, Chubb Commercial Insurance secured rate hikes on 70 percent of the renewed business, compared to just 30 percent in the fourth quarter of 2010, he added. In markets outside of the United States, Chubb Commercial Insurance obtained renewal rate increases in Canada as well as continued increases in countries that experienced recent catastrophes such as Japan, New Zealand and Australia. Rates in Europe continued to be flat, however.

Renewal Rate Hikes in Professional Liability

Krump said that in the Chubb Specialty Insurance division, the average renewal rates for professional liability in the United States turned positive in the fourth quarter, averaging 1 percent.

“For perspective, that positive 1 percent compares to the negative 1 percent we reported in the third quarter, negative 2 percent in the second quarter and negative 3 percent in the first quarter of 2011,” he said. “The last time we obtained positive rate increases in the United States for professional liability was 2009 when there was a fair amount of market disruption in the wake of the financial crisis. Prior to that, rates had not increased since the first quarter of 2004.”

Rates for all three segments of the directors-and-officers liability book of business (public companies, private companies and not-for-profit entities) all experienced low single-digit increases, he said. Regarding the renewal rates for other professional liability lines of business, crime, employment practices liability and fiduciary were positive in the fourth quarter while financial fidelity and errors and omissions were flat.

The Chubb Specialty Insurance’s renewal retention was 85 percent in the fourth quarter, falling from the 89 percent.

In Chubb Personal Insurance, due to the recent heavy catastrophe and non-CAT weather-related losses, the company is now filing for homeowners rate increases in the U.S., mostly in the 5 percent-to-6 percent range, compared to earlier in 2011 when they were in the 3 percent-to-4 percent range. “And we anticipate filing for additional rate increases as needed,” said Dino Robusto, president of personal lines and claims.

“Given the widespread rate taking in the general market, we do not think this will have a significant impact on our retention or our ability to attract new customers as evidenced by our experience in 2011,” Robusto said. “Indeed, in the fourth quarter of 2011, homeowners in the U.S. had its eighth-consecutive quarterly increase in policy count retention, ending the year with a U.S. homeowners retention rate of 91 percent, nearly a point higher than a year earlier.”

CEO Finnegan: ‘Marketplace Is Still Very Competitive’

Chubb CEO John Finnegan also noted during the conference call that he is seeing a sustained improvement in the standard commercial insurance prices. “Net written premiums for the fourth quarter were up 4 percent, reflecting rate improvements in all three of our business units,” Finnegan said.

Chubb CEO Finnegan added, “We continue to see sustained momentum in the standard commercial rate increases that we’ve been discussing for the last few quarters. And in professional liability, we secured rate increases for the first time in two years. We also obtained rate increases in personal lines. Nevertheless, our marketplace is still very competitive and we remain steadfastly focused on writing profitable business.”

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