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Commercial Premiums In 2008: Still too Low?

01 February 2009

Acturis has analysed the aggregate trading data on the Acturis System for Commercial Lines business in 2008. Our conclusion is that 2008 was a poor year for the Regional Commercial Lines Premiums. Average Premiums have continued to fall across most classes in 2008 relative to 2007. While there are small signals that a recovery may be starting, a great deal will need to be done to ensure this continues through 2009.

Commercial Combined premiums, which represent some 20-25% of a typical broker portfolio, have fallen through 2008 by some 4% with a worsening trend – especially for new business. It looks as though Combined average premiums could reduce further still through early 2009.



Reductions have worsened through 2008. Looking at Quarterly average premium rate movements relative to the equivalent quarter 12 months earlier, we can see that the rate of reduction has progressively worsened through 2008.



Green shoots of recovery in Q4 2008? The Exhibit below shows the Quarter on Quarter average premium movements (Q2 2007 is indexed at 100). We saw a 4% increase in Q4 2008 for average premium relative to the previous quarter. Interestingly this was reflected in both Renewals (+6%) and New Business (+1%).



Packages include all popular SME and Micro packages (eg Tradesman, Shops and Offices) and typically total some 10% of a broker’s portfolio. Average premiums have fallen by 5% from 2007 levels, with New Business premiums falling more severely and Renewal premiums actually increasing by 3%, offsetting the overall reduction and reflecting the indexation of sums insured.



The rate of reduction has eased through the year. Looking at Quarterly average premium rate movements relative to the equivalent quarter 12 months earlier, we can see the reduction in Average Premium was severe early in 2008 and eased off as the year progressed. While, New Business average premiums have continued to reduce in all 4 Quarters of 2008, Renewal Average Premiums have actually increased in Q2, Q3 and Q4 after small initial Q1 reductions.



Q4 also points to a potential reversal. Looking at Quarter on Quarter Indexed average premium movements, we saw a potential reversal in Q4 - for the first time in Q4 2008 the overall index has trended sharply upward by some 7%, and this is reflected in both New Business and Renewals.



Property Owners includes all property Owners related premiums from £500 to £65,000. Average premiums have fallen by 6% from 2007 levels, with New Business premiums falling more severely by some 16% and Renewal premiums actually increasing by some 7% offsetting the overall reduction.



Reduction shows no sign of ending. Looking at Quarterly average premium rate movements relative to the equivalent quarter 12 months earlier, the rate of reduction has been reasonably consistent through 2008. While overall annualised reductions are in the order of 7-8% per quarter relative to the corresponding quarter 12 months ago, New Business average premium reductions have been severe throughout the year but interestingly Renewal average premiums have increased in all 4 Quarters of 2008.



Similar to other products, the last quarterly average premium movement was upwards. Interestingly Q4 was the first quarter in which the new business index turned upwards.



Motor Fleet Business represents some 20% of a typical broker portfolio. Average Premiums have been more stable than the other classes and premiums have remained flat from 2007 levels, with New Business premiums increasing by 1% and Renewal premiums falling by 2%.



Movements are flat. Looking at Quarterly average premium movements relative to the equivalent quarter 12 months earlier, there has been a mixed overall result with minimal movements up or down. However, new business average premiums have increased in most quarters and, interestingly renewal average premiums have decreased in most quarters. Does this suggest that insurers will only take new business at attractive levels but are holding onto (attractive) existing portfolios?



Shrinkage of Renewal/New Business Spreads supports increases. Looking at quarter on quarter movements, we also see a reduction in the spread between Renewals and New Business average premium through 2008 vs 2007. Through 2008 this spread narrowed and now we have a situation where the difference between Renewals and New Business is negligible. Perhaps participants are now prepared to sacrifice volume for profitability in this competitive class and are pushing through wholesale rate increases?



Basis of Calculation
All renewal and new business trades on Acturis System in a particular class for 2007 and 2008 with extreme values removed: Combined: £500-£65,000 premiums; Packages £50-£4,000 premiums; Property Owners £125-£60,000 premiums; Fleet £500 – £60,000 premiums. Property Owners includes commercial, residential and mixed business.


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