Commercial insurance prices dropped four percent during the third quarter of 2008 compared to the same quarter a year ago, according to Tower Perrin’s most recent commercial lines insurance pricing
and profitability trends (CLIPS) survey.
This deterioration, while less severe than the five percent drop seen in the second quarter of 2008, comes at the front end of the decline in the financial markets, and the full effect of the current global economic downturn on commercial prices has not yet been captured.
Property pricing softened considerably, while price changes in specialty lines remained fairly flat for the second consecutive quarter, according to the survey.
Updated loss ratio indications from the survey show accident year 2007 loss ratios deteriorating 11 percent relative to 2006, and the partial indication for accident year 2008 shows a 10 percent decline.
“The overall deterioration in pricing is a continuation of the trend cited
when we published our first survey almost four years ago,” said Jeanne Hollister, Towers Perrin managing principal and Property/Casualty Insurance practice leader for the Americas region. “We do, however, expect to see abatement in soft market conditions in the U.S., as companies consider a number of factors in their pricing decisions, including equity and credit-related losses to asset portfolios, a continuation of poor underwriting results in many sectors, heavy weather-related losses and a forecasted spike in directors and officers liability claims.
“In our view, the industry is fast approaching a point where the underwriting results are no longer favorable relative to economic hurdle rates, and that generally signals a ‘tipping point’ in terms of companies’ pricing actions,” added Hollister.
Towers Perrin said that CLIPS data are based on both new and renewal business obtained directly from carriers underwriting the business, and indicate more conservative price reductions than other marketplace surveys.
CLIPS participants include the majority of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S.
Source: Towers Perrin
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