Marsh & McLennan Companies, Inc. : Tougher U.S. Commercial Insurance Market Conditions Expected in 2012: Marsh

Rates Continue to Climb across Major Lines of Business; Some Decreases Still Available

U.S. commercial insurance rates are expected to climb across many lines of business in 2012, continuing a trend that began in the second half of 2011, according to a comprehensive report published today by Marsh.

Substantial catastrophe losses and reduced investment returns prompted many U.S. insurers to seek rate increases in 2011, most notably in the property market, Marsh said in its report, Navigating the Risk and Insurance Landscape: U.S. Insurance Market Report 2012. Property insurance rate increases are expected to accelerate in 2012, especially for insureds with significant catastrophe exposures or loss histories, it notes.

There are also signs of rates firming in the primary and excess casualty insurance market. This is especially true for lead umbrella coverage, where participating insurers have been seeking mid- to high-single-digit rate increases across a wide range of industry groups due to unprecedented losses. Financial and professional rates, including for directors and officers (D&O) liability, are expected to firm modestly in 2012, although rate decreases are still achievable.

"Entering 2012, the U.S. insurance market has continued the trajectory developed during the fourth quarter of 2011 and is now in an obvious state of transition," said David Bidmead, Marsh's U.S. CEO. "Although not classified as a 'hard' market, increasingly consistent signs of market correction are prevalent.

"Carriers are expected to be extremely disciplined in their underwriting and seek rate increases where they can. Those insureds that are able to provide carriers with complete, accurate, and quality data will be best positioned to navigate a changing insurance market and effectively differentiate themselves from others seeking critical capacity for catastrophe risks."

Major findings in the Marsh report include:

• Half of Marsh's U.S. clients surveyed experienced property rate increases in the second half of 2011. Insureds with large catastrophe exposures and those with significant losses in 2011 typically saw rate increases of 10 percent or more during the fourth quarter. These conditions are expected to persist in 2012.
• Primary casualty insurance pricing decreases moderated in 2011, with general liability rates ranging between 5 percent increases and 5 percent decreases in the fourth quarter; insureds can expect to be flat to up 5 percent in 2012 depending on exposure.
• For excess casualty, lead umbrella rates generally were flat to up 10 percent in the fourth quarter of 2011 and excess layers typically were flat to up 5 percent. Market capacity is expected to shrink in 2012 for certain risks.
• Workers' compensation rates tended to be flat to up 5 percent in the fourth quarter of 2011. Continued firming of the market is expected in 2012, driven by higher underlying claims and medical cost inflation. Rates could be affected as a growing number of states pursue legislative reforms to control medical care costs.
• D&O liability rates were generally flat to down 5 percent for most companies in the fourth quarter of 2011. Larger companies were able to secure rate decreases of as much as 10 percent. However, the market is expected to firm modestly in 2012 as a lack of profitability may pressure insurers to seek flat renewals or small increases. Litigation risk related to the Dodd-Frank Wall Street Reform and Consumer Protection Act, Foreign Corrupt Practices Act, and mergers and acquisitions remains high.
• Rates for errors and omissions insurance were typically down 5 percent to up 5 percent in the fourth quarter. Although it is still possible to obtain reductions, rates are expected to generally be flat to slightly up in 2012. Recent court decisions point to more significant privacy and cyber exposures, such as data breaches and hacking incidents, for many U.S. companies.

Marsh's annual U.S. Insurance Market Report, which provides detailed information on commercial insurance market trends and conditions for all major classes of business and more than two dozen industry and specialty lines, is available at http://imr.marsh.com. Clients can also use this link to access Marsh reports for other regions and for multinational insureds globally.

About Marsh

Marsh, a global leader in insurance broking and risk management, teams with its clients to define, design, and deliver innovative industry-specific solutions that help them protect their future and thrive. It has approximately 25,000 colleagues who collaborate to provide advice and transactional capabilities to clients in over 100 countries. Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 52,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; Mercer, a global leader in human resource consulting and related services; and Oliver Wyman, a global leader in management consulting. Follow Marsh on Twitter @Marsh_Inc.

Marsh
Jason Groves, [phone]
[e-mail]
or
Sally Roberts, 303-952-9453
[e-mail]
or
Anand Poola, 212-345-4292
[e-mail]