U.S. commercial lines show smallest price reduction in the last two years: Towers Perrin

Commercial insurance prices in the United States saw a slight decline of 3% during 2008 Q4 compared to the same quarter in 2007, according to Towers Perrin’s most recent commercial lines insurance pricing and profitability trends survey (CLIPS).
“This price reduction is the smallest reported in the last eight quarters,” the survey notes.
CLIPS found that in 2008 Q4, “those product lines and market segments that have experienced the greatest reductions in pricing over the last few years — most notably workers compensation, property and large accounts — showed initial signs of stabilizing in the fourth quarter.”
Furthermore, the pricing reductions in those areas are now generally in line with activity in other commercial lines, with the exception of specialty lines, where price changes remained fairly flat.
CLIPS data show that accident-year 2007 loss ratios deteriorated 7% relative to 2006. Accident-year 2008 loss ratios rose an additional 12% versus 2007.
The deterioration of loss ratios is a continuation of a five-year trend, Towers Perrin notes, adding that prices have eased 11% overall since 2004, despite ongoing increases in loss inflation.
“The underlying deterioration in underwriting results, coupled with unprecedented investment losses, are contributing to a slowing of pricing declines,” said Jeanne Hollister, Towers Perrin managing principal and property and casualty insurance practice leader for the Americas region. “Although the property and casualty industry remains strongly capitalized in the aggregate, we expect that the surplus declines in 2008 will result in increased conservatism in companies’ risk appetite.
“We believe that this, in turn, will lead to a gradual, general firming of prices throughout the balance of 2009.”
CLIPS participants represent a cross section of U.S. property and casualty insurers that include many of both the top 10 commercial lines companies and the top 25 insurance groups in the United States.