KBW: ‘No Acceleration of Rates’ Into Traditional Hard Market

Analysts at investment research firm Keefe, Bruyette & Woods recently published a note recapping KBW’s annual insurance conference, held last month in New York.

Analysts observed that while the general tone of management teams at the conference was somewhat uninspired, the consensus was that the rate environment continues to “gradually improve,” helping to offset the crushing pressures of lower investment yields.

Pricing is improving, albeit gradually, analysts remarked. Consensus appeared to hover around the 5 percent level for average rate increase in most U.S. commercial lines, with the possible exception of workers’ comp, according to KBW.

This indicates there seems to be no momentum or acceleration of rates into a traditional hard market, according to the investment research firm.

“Rather,” analysts said, “driven by the income statement need of better ROEs, we are seeing gradual improvement.”

Several executives at the event lamented ongoing economic weakness and pointed out that a real boost to volumes would require a better economy, according to KBW. In personal lines, the rate hikes have been in the 2-3 percent range.

Analysts observed that workers’ comp writers continue to find rate increases, particularly in California, but also in Florida and New York. Exposure (payroll) seems to be slowly improving as well. The bad news is that the industry booked a 115 percent workers’ comp combined ratio in 2011 (excluding state funds), so there is much room to improve, KBW noted.