Survey: Commercial P/C Rates Hold Flat or Drop Slightly

April 20, 2006

Commercial property/casualty rates were flat or fell slightly during the first quarter of 2006, with renewal premiums for half of all account sizes holding steady or dropping between 1 percent to 10 percent in the first three months of the year, according to survey of P/C insurance agents and brokers.

In the latest commercial P/C market survey by The Council of Insurance Agents & Brokers, 15 percent of the brokers responding said small accounts received premium quotes at renewal that were between 10 percent to 20 percent lower than similar quotes received during fourth quarter 2005. And 22 percent to 24 percent of the brokers, respectively, said medium and large accounts were down between 10 percent to 20 percent from the previous quarter.

According to an analysis of The Council data by Lehman Brothers Equity Research, the average commercial P/C account renewing in the first quarter of 2006 experienced a rate decline of 2.7 percent.

The Lehman analysis and broker responses to open-ended questions in the survey suggested that the rate of decline in premium prices is slowing and in some cases, premiums may be stabilizing. The exception is in the coastal regions of the country where both commercial property capacity and wind coverage are problematic.

“Suddenly, after Jan. 1, carriers wanted a flat (rate) or rate increase on renewal. This was in contrast to the rate reductions we saw prior to year-end. It came with no warning,” said a surveyed broker from the Southwest.

The pattern of stable to slightly reduced premiums on renewal accounts was evident across virtually all commercial P/C lines. The commercial P/C accounts most likely to experience moderate premium rate increases at renewal of between 1 and 10 percent, were commercial property, commercial auto, business interruption, medical malpractice, terrorism and broker E&O accounts.

“Overall rates are down EXCEPT for property cat exposures (which are) up more than 25 percent,” said a broker from the Midwest.

In responding to open-ended questions, brokers said as the next hurricane season rapidly approaches, Florida property capacity is limited, and coastal wind capacity is quickly diminishing.

“In personal lines, we are just about non-existent except for the state-run Citizens Insurance Co. The majority of the market has pulled out or is on standby getting decisions from management or reinsureds as to proposed action,” said one broker. “In regard to commercial, we are seeing increased property rates as a result of the continued multiple storms that occurred in Florida in 2004 and 2005.”

“Limited wind capacity,” said another respondent from the Southeast. “It takes 10 carriers now to do what two did last year on layered programs.”

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