P&C rates stabilize

Commercial property and casualty insurance rates are likely to remain relatively flat in 2010, despite the losses that many insurance companies have taken in their investments over the past few years.

Kevin Steiner, president and chief executive officer of West Bend Mutual Insurance Co., said the industry is feeling an increased need to raise commercial P&C rates, but will likely have a hard time doing so.

“We’ve been in a very competitive market for the past five years with prices decreasing in commercial lines,” he said. “That has been putting pressure on underwriting results, and as they deteriorate, you would think you’d see corresponding rate increases.”

But despite the losses many investors, including insurance companies, had in the stock market in recent years, the P&C industry remains well capitalized, which puts further downward pressure on rates, Steiner said.

“Now that we’ve seen some of the losses from 2008 return in 2009, it continues to put the industry in a fairly favorable surplus position,” he said. “When you put all of those together, one might say that rates would continue to be flat.”

Roy Bubeck, president and CEO of Milwaukee-based Badger Mutual Insurance Co., agreed.

“There would be a desire for minimal increases, but I’m not sure the market will take them,” he said. “I’d expect things to stay relatively soft.”

Ken Riesch, president of R&R Insurance Services Inc., said carriers are giving him similar projections about the coming year.

“I think we will be seeing a very soft market in 2010 with no real rate increases,” he said. “We go through planning sessions with carriers (every year) and in our sessions this year, the carriers are not really looking to gain a lot of rate.”

Many companies have adopted the mantra “flat is the new up” this year, when talking about their revenues, and many P&C companies seem to feel the same way, Riesch said.

Because so many businesses are still experiencing lower sales levels and earnings, P&C carriers will have a hard time raising their rates, said Rob McIntyre, president of the Waukesha branch of The Horton Group.

“Insurance premiums are a function of sales, payrolls, number of vehicles and payroll counts,” he said. “With all of the businesses that are suffering, many of their premiums are actually reducing. There is a pressure on the (insurance) companies to further reduce their expenses to remain competitive. The market does not have a tolerance for rate increases.”

“Much of P&C pricing is based off of exposures like payrolls and sales, which are down,” Riesch said. “As those go down, premium goes down.”

Because of the losses that some insurance carriers have taken in the stock and financial markets, there is likely to be increased consolidation in the industry in 2010, McIntyre said.

“The (companies) that are not making money based on underwriting results will have to cut expenses further or seek capital from M&A type activities because increasing rates simply won’t be an option in this marketplace,” he said. “And if premiums are dropping for insurance companies, revenue for (brokerage) agencies will be suffering as well. We’re fortunate that we’ve been able to survive on flat for now – but that spurs all sorts of reduction pressures on us as well.”

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