For several consecutive years, commercial property and casualty insurance rates have seen little to no upward movement. And insurers have been willing to insure — or underwrite — properties, equipment and businesses that they might not otherwise in a hard market, a period in which rates are rising.
But the soft market may be coming to an end, brokers said, in light of a longer than normal period of low rates and risk tolerance, especially given a new industry report released Tuesday.
ISO and Property Casualty Insurers Association of America said private property and casualty insurers’ after-tax net income shrank to $8 billion in the first nine months of 2011, compared with $27.1 billion in the same period a year ago.
Profits were squeezed by net losses from underwriting that swelled to $34.9 billion compared with $6.3 billion in the first nine months of 2010. The primary cause of the underwriting losses is attributable to major catastrophes in 2011, such as the Japanese tsunami and earthquake, and devastating tornadoes in Alabama and Joplin, Mo.
ISO and PCIAA said a spike in net losses and loss adjustment expenses from catastrophes reached $33.2 billion in the first nine months of the year. That compares with catastrophe loss expenses of $10.8 billion in the same period in 2010.
Industry officials said that despite the underwriting losses, insurers remain capable of paying future claims. But area brokers said it’s a good bet insurance companies likely will adjust rates higher and be more conservative in what they insure.
“When the industry loses that much money, the writing is on the wall,” said Lance Spence, president of CIG Insurance. “That logic would lead us to believe it’s truly coming, a shift away from a soft market.”
But Kurt Watson doesn’t think the coming hard market will be ripe with huge rate increases and a significant pullback in what insurance carriers underwrite.
“There is going to be more careful underwriting in some areas, some firming of price,” said Watson, president and chief operating officer of IMA Financial Group. “I think we’re seeing that in the property area, in the workers’ comp area. But I don’t think we’re going to see huge increases in costs.”