Aon published its review (reg. req.) of the 2009 commercial and large account markets and a preview of 2010. As an actuary, I always focus on the rate section of these papers, and Aon has had to find a lot of ways to say rates declined last year and will do so again this year.
Here’s Aon’s tables for rate change in property, casualty and D&O:
The forecast isn’t much rosier. Aon predicts property rates will decline between 5% and 15% with declines on the same scale throughout the casualty world, except for lead umbrella liability, where some tiny increases may occur.
Aon points to five reasons for the soft market:
- Mutuals – which have smaller incentive for profits than a stock company – are one-fourth of the P&C market. Being less profit-hungry implies they will more readily accept lower rates.
- Reinsurance revenues are down. To keep lost renewals from driving them down further, reinsurers are decreasing rates. The primary companies pass along the lower rate to the insureds.
- Some insurers are building market share today so they have a fistful of renewals when the next hard market occurs.
- Financial assistance to impaired companies have kept them in the market. (I guess we’re looking at you, AIG.)
- Prior year development has been surprisingly benign. Another chart:
You can see unfavorable development peaked in 2002, while there are indications that favorable development peaked in 2008.
Aon’s report also goes into detail on changes in limits, retentions and attachment points and spends time on some smaller coverages – EPLI, fidelity and kidnap/ransom. Be sure to take a look (reg. req.). (via Insurance Journal)