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2009: General Liability - Staying Relevant (and Profitable) in the New World of Risk

General liability is a diverse and volatile line of business and has been a source of significant profitability for some companies and a source of significant losses for many. It also has been highly cyclical, subject to market extremes during both hard and soft parts of the industry underwriting cycle.  In this new Strategic Study, we examine the current profitability and growth of the line, with an eye toward future prospects.  We focus on the continuing role of traditional insurance mechanisms for dealing with the effects of risk amid the potential for a changing risk environment. We examine the effects from “below”—meaning the effects of small to moderate, but accumulating, losses on general business profitability—and from “above,” with respect to the rising prospect of mega-risks.  The future of GL insurance will play itself out between these two poles of risk.

1. Introduction

2. Executive Summary

3. Current GL Financial Performance: Where Are We Now?

  • The Position of GL in the Property-Casualty Universe
  • Recent Financial Trends in GL
  • The GL Universe by Segment
  • Summary

4. GL Loss Development and Reserve Adequacy

  • Disentangling Loss Development Trends
  • Current GL Reserves Adequately Represent Ultimate Loss Expectancies
  • Claim Counts and Frequency
  • Summary

5. Individual Company Performance and Specialized GL Segments

  • Individual Company and Segment Performance
  • The Surplus Lines Market and Specialists
  • Market Segmentation & Specialization by Account Size
  • Summary

6. Challenges to the Traditional Market: The Rise of Alternative Markets, Mega-Risks, and Emerging Risks

  • The Alternative Market Today
  • The Increase in Mega-Risks—Alternatives from Above
  • The Threat from Emerging Risks
  • Summary

7. Increasing Value Throughout the Risk Spectrum

  • Improved Underwriting
  • New GL Products: Expanding Customer Options
  • Prospects for Profitable Growth Through Increased Specialization
  • Increasing Relevance by Expanding Service Options
  • The Added Value of Knowing the Customer
  • Insurers Are Getting the Message
  • Summary

8. Outlook for GL and Opportunities for Overcoming the Obstacles to Profitable Growth

  • Conning’s Forecast of GL Performance
  • Conning Strategic Priorities
  • Summary

Appendices

A. Largest Writers of General Liability
B. Key Writers of General Liability by State, 2007
C. Key Writers of Medical Malpractice by State, 2007
D. Conning Forecast Model 

Introduction

General liability is a diverse and volatile line of business in the product lineup of the property-casualty industry. It has been a source of significant profitability for some companies and a source of significant losses for many.  It also has been highly cyclical, subject to market extremes during both hard and soft parts of the industry underwriting cycle.

The general liability, or GL, business segment represents liability business that is written on a monoline basis.  It is a mix of general and specialized coverages for damages to third parties that involve either bodily injury, property damages, or financial damages. The segment studied in this report excludes liability relating to operation of motor vehicles, medical professional liability, marine liability, and other specialized liability coverages that are recognized in different product categories.  Some similar business is also written as parts of package policies, including commercial multiperil and, to a lesser degree, homeowners and farmowners multiperil.  This study is concerned with the monoline portion of this business.

General liability, as we use the term in this study, consists of two reported lines of business, other liability and products liability. Other liability, consisting of two basics types of coverage—CGL (commercial general liability policies) and professional liability—is reported on line 17 in the Underwriting and Investment Exhibit page of the financial statements. Line 17 also includes commercial umbrella, personal umbrella, and excess liability policies. Products liability is reported on line 18.

In this study, we examine the current profitability and growth of the line, with an eye toward future prospects. We focus on the continuing role of traditional insurance mechanisms for dealing with the effects of risk amid the potential for a changing risk environment. We examine the effects from “below”—meaning the effects of small to moderate, but accumulating, losses on general business profitability—and from “above,” with respect to the rising prospect of mega-risks. The future of GL insurance will play itself out between these two poles of risk.

How has the business changed, and how is it continuing to change, through the economic and political transformations taking place in the U.S.? How have some companies sustained profitability in this volatile business? What is our outlook for the line through the next several years and beyond? Finally, what do companies need to focus on through this period to survive and prosper?

These are some of the questions that this report explores.

Conning has published a series of Strategic Studies focused on issues affecting liability insurance.

  • 2008 Directors’ Officers’ Liability—Finding the Right Niche
  • 2008 Property-Casualty Loss Reserves—Thinner, but Is the Tail Getting Fatter?
  • 2007 Property-Casualty Surplus Lines—Profiting from the Right Strategy

 

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