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U.S. commercial premiums up, loss ratios down in 2012: Fitch


April 10, 2013   by Canadian Underwriter


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Fitch Ratings Inc. reported this week that insurance carriers in U.S. commercial lines earned more premiums last year than in 2011, while loss ratios in those lines also dropped year-over-year.

Financial

On Tuesday, Fitch announced the release of a special report, the U.S. Commercial Lines Market Update, which included a graph  depicting aggregate earned premiums in commercial insurance.

In 2012, earned premiums were US$189 billion and the loss ratio was 74.3. In 2011, earned premiums were US$182.53 billion and the loss ratio was 76.4. The figures for premiums excluded reinsurance lines, mortgage insurance and financial guaranty.

“The U.S. commercial lines segment experienced a second straight year of favorable premium growth in 2012, fueled by hardening market conditions that have persisted over the last 18 months,” according to the report.

The report includes a pie graph showing the breakdown of net written premiums, which were US$187.7 billion in 2012. One fifth of those revenues came from workers compensation, 17% was from multi-peril, 14% fire and allied and 9% commercial auto. Three different categories of liability (medical professional, “other liability – occurrence” and “other liability – claims made”) comprised a combined total of 25% of net written premiums in 2012.

“Claims made” refers to liability insurance that provides coverage for claims made in the period the policy is in force, while “occurrence” refers to polices that provide coverage for the act when it occurs, regardless of when it is reported, Fitch Ratings analyst James Auden specified in an e-mail to Canadian Underwriter.

“What this means to the business owner is that there is a risk of an unknown or unreported claim being made long after the policy period and not being covered because the claim was made outside of the coverage period,” Auden wrote of liability-claims made policies, adding that policyholders wanting to be covered after the policy is up must purchase tail coverage, or an extended reporting endorsement.

In the report, Fitch Ratings also breaks down the loss ratios in seven categories for the past five years. For example, commercial multi peril dropped, from 80.5 in 2011 to 72.6 in 2012, while the industry-wide loss ratio for medical professional-claims made increased year-to-year, from 79.9 in 2011 to 84.9 in 2012.

The loss ratio in U.S. commercial auto dropped from 75.2 in 2011 to 73.7 in 2012, but it was still higher than in 2008, when it was 67.8.

“Commercial auto liability results have been hindered by slower premium growth relative to other segments,” according to Fitch. “Also, commercial auto incurred losses have been adversely affected by higher costs of bodily injury claims similar to recent personal auto claims experience. This segment has generated higher expense ratios than other commercial lines in recent years, putting a further strain on performance.”

Fitch Ratings notes that the U.S. commercial lines market is in a “hardening phase” but this is different from previous hard markets.

“Recent price increases represent a response to past underwriting losses, and recognition that underwriting profits are the only viable replacement for falling investment income in the current low yield environment, rather than a shift due to a meaningful decline in underwriting capacity,” according to Fitch. 


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