Putting together views on the economy and pricing momentum, analysts who supplied premium growth forecasts for 2013, put them in the 3-5 percent range.
Conning: Supporting a 4.6 percent forecast for net premium growth, Vice President Jerry Theodorou said the firm’s forecast was shaped by two main drivers — the economy and the insurance market.
“The second [driver] appears to be generating more uplift,” he said. “Reports of commercial insurance rates rising 4-5 percent and mid-single digit personal lines rate increases in recent months, in combination with mild economic growth” underpin the Conning forecast, he said, noting that 2013 economic growth is expected to be 2 percent, down slightly from 2.2 percent projected for 2012.
Fitch: Managing Director James Auden expects 4 percent premium growth for 2012, and roughly 3 percent in 2013.
“There are plenty of questions about the economy” — such as whether a slower growth economic recovery is sustainable and related to uncertainty surrounding tax and funding issues at the start of the year. “If we go back to a recession, we can get also back negative premium growth. While historically pretty unusual, we had three consecutive years [of declines] from 2007 through 2009, he recalled.
Auden also thinks competitive forces within the industry could mean price momentum starts fading as early as the second half of 2013, he said. “You may still see positive rate increases, but I think the increases will decline from what we’re seeing currently.”
“Workers’ compensation [pricing] has been going up 8 percent or so. I don’t think you’re going to get 8 percent on top of 8 percent. That momentum is likely to fade.”
Moody’s: While not providing an overall premium growth forecast, Alan Murray, senior vice president for Moody’s U.S. insurance team, said the rating agency expects pricing improvement to continue in 2013 — and “it needs to,” he added. For certain lines, especially workers’ comp, which is getting significant rate increases, the accident-year combined ratios suggest substantially more are needed to get to even breakeven, he said, referring to a Moody’s analysis that forecasts a 104 ratio for 2013.
Turning to the macro economy, he describes it as stabilizing. “While unemployment is still high compared to historical norms, it’s not on par with the most stressed European countries.”
“All things considered, we expect a sustained muted economic recovery, but that’s not going to fill the hole of rate inadequacy in certain lines of business.
Contrasting the situation today with the end of the last down cycle, Murray said the healthier financial positions will keep price increases moderate. Ten years ago, “you also had multiple years of rate deterioration in commercial lines, but then you had massive holes in the reserve adequacy and festering asbestos and environmental liabilities,” prompting sharp increases when the market turned, he said.
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