The prolonged soft market for property/casualty insurance is coming to an end, raising the specter of sharp premium hikes next year. An increase in catastrophes worldwide, underpricing, rising interest rates, and a volatile stock market are all contributing to what some expect will be double-digit increases for some policyholders.
For one CFO at a domestic insurer, a key indicator of the coming price increases is the reinsurance market. “It appears that reinsurance rates are increasing, and that, exclusive of anything else, would cause rates in the primary market to increase,” he asserts.
For the past six years, rates have declined as much as 50 percent in some lines of insurance in many states, due to legislative reforms and deregulation of the industry, according to Gary Gregg, executive vice president for commercial markets for Liberty Mutual Group. Naturally, margins are under pressure. In workers’ compensation, the industry combined ratio–claims and expenses divided by premium– was 122 percent in 1998, according to the National Council on Compensation Insurance. Investment income can make up some, but not all, of that deficit, Gregg says.