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Aug. P&C Rate Holds at Minus 1%; Auto, Transportation Up

The U.S. property and casualty composite rate for August was stable at minus 1%, the same as July, MarketScout reported. By industry classification, manufacturing, habitational and energy each moderated 1% , while all otherBarometer industry classifications remained unchanged.

“While the month to month composite rate is stable, there is clear movement in commercial auto and transportation accounts with each showing a year over year rate increase of plus 3%,” said Richard Kerr, CEO of MarketScout. “Insurers have decided it is time for commercial auto and transportation accounts to start paying up.”

By coverage, commercial property, workers compensation and professional liability each moderated 1% in August—to minus 1% for property, minus 1% for workers compensation and flat for professional liability. Commercial auto rates went up to plus 3%, while all other coverages remained unchanged, MarketScout said.

Coverage class 1

By account size the only adjustment was for accounts with more than $1 million premium, which adjusted from down 3% in July to down 2% in August.

Account size 3

Industry class 2

P&C Rates Drop 2% in May

The rate index for property and casualty risks was down 2% in May, the same as was seen in April, MarketScout reported. Accounts of more than $250,000 were priced more aggressively in May, at minus 3% compared to minus 2% in April.

“The market was stable in May with small movements in coverage, industry, and size classifications,” MarketScout CEO Richard Kerr said. “As we have seen in the past, larger premium accounts were priced more aggressively. Overall, the composite rate was down 2% in May, matching the rate for April.”

Acct size

According to the Insurance Information Institute:

A dominant factor in the P/C insurance cycle is intense competition within the industry. Premium rates drop as insurance companies compete vigorously to increase market share. As the market softens to the point that profits diminish or vanish completely, the capital needed to underwrite new business is depleted. In the up phase of the cycle, competition is less intense, underwriting standards become more stringent, the supply of insurance is limited due to the depletion of capital and, as a result, premiums rise. The prospect of higher profits draws more capital into the marketplace, leading to more competition and the inevitable down phase of the cycle.

By coverage classification, rates for property, business interruption, professional, auto, directors and officers, and surety all moderated 1% compared to April. Crime coverage increased from flat to plus 1%.

Coverage class

Industry classifications are examined to determine rate movement as measured when grouping accounts according to their SIC, or Standard Industrial Classification codes, MarketScout said. SIC codes are four-digit numerical codes assigned by the U.S. government to business establishments to identify their primary business, according to SICcode.com.

Industry class 3

The SIC codes are then incorporated into seven different segments. The only changes in rates in May versus April were in habitational, which moderated from minus 3% to minus 2%; and energy, which was priced slightly more aggressively at minus 3% compared to minus 2%. All other industry classifications were unchanged compared to April, MarketScout said.

Close of 2015 Sees More Rate Reductions

Insurers’ competition and ongoing fight for market share resulted in a composite rate down 4% in December for the U.S. property and casualty market. But while market cycles are here to stay, the current cycles are tame compared to some previous years.Barometer In 2002, there was a mean average rate increase of 30% and, in 2007, a mean average decrease of 13%, according to MarketScout.

“Market cycles are part of our life, be it insurance, real estate, interest rates or the price of oil. Market cycles are going to occur without question. The only questions are when, how much and how long.” MarketScout CEORichard Kerr said in a statement. “While it may seem the insurance industry has already been in a prolonged soft market cycle, we are only four months in. The market certainly feels like it has been soft for much longer, because rates bumped along at flat or plus 1% to 1½% from July 2014 to September 2015.” He pointed out that the technical trigger of a soft market occurs when the composite rate drops below par for three consecutive months.

Rate Trend

MarketScout has been tracking the U.S. property and casualty market since July 2001. Kerr pointed out that during that time, the length and veracity of the market cycles has become less volatile in the last five or six years. “Thus, the impact of a hard or soft market in today’s environment may be 5% or 6% up or down,” he said. “Can you imagine how we would react today in a market such as that of July 2002 when the composite rate was up 32%? Or in December 2007 when the composite rate was down 16%? Underwriters today have better tools to price their products and forecast losses. Further, the chances of a rogue underwriter or company are greatly reduced by the industries’ checks and balances. There may be less excitement but there are probably far fewer CEO heart attacks.”

December 2015 rate summary by coverage, industry class and account size:
Coverage1
Industry class2
Account size3

U.S. P&C Rates Continue to Decline

As 2015 draws to a close, U.S. property and casualty insurers continue to adjust rates downward. The composite rate index for all P/C business placed in the UnitedM Scout-1 States was down 3% in November 2015, compared to down 2% in October, according to MarketScout.

“There are very few signs of rate increases. The only coverage with seemingly steady rate increases is cyber liability,” Richard Kerr, CEO of MarketScout said in a statement. “Underwriters don’t have a lot of data to use for pricing cyber so we expect pricing to be inconsistent in the near term.”

By coverage classification, property, business interruption, business owners’, inland marine, auto, umbrella, and crime coverages all adjusted down an additional 1% from the prior month. General liability and workers compensation were down an additional 2% compared to last month.

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By account size, jumbo (more than million) and large (0,001- million) accounts were the most competitively priced and were down an additional 2% from the preceding month.

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Medium ($25,001-$250,000) and small (up to $25,000) accounts were down an additional 1% from October, MarketScout said.

Manufacturing and service industries were down an additional 2% from the prior month. Habitational, contracting, public entity and energy were down 1% from last month. Transportation was unchanged.

Summary of November 2015 rates by coverage, account size and industry class:

M Scout-2

M Scout-3

M Scout-4

Annualized year-on-year rate adjustments from November 2014 to November 2015:

M Scout-5