This moderate level of growth, while perhaps less than what carriers would desire, has a number of positives. For one, it certainly beats the years of soft, inadequate pricing prior to the slow turn upward in rates during 2012. Plus, a gradual market shift allows buyers to adjust to the changing environment with none of the painful sticker shock that typically afflicts insureds in hardening markets. 

Or, as Marla Donovan, vice president of product development at insurance wholesaler Burns & Wilcox, puts it: “The market is as sane as any of us can remember it being. The 'panic' is not there.” 

STILL UNCLEAR: SANDY'S LONG-TERM IMPACT  

Though catastrophe modelers have prognosticated industry losses of up to $25 billion from Superstorm Sandy, each public insurer announcing individual losses to investors prior to fourth-quarter earnings announcements warned of significant unknowns in their ultimate Sandy-loss estimations. 

“Everyone is waiting to see the true impact” Sandy will have, says Donovan. 

Richard Kerr, CEO of insurance exchange MarketScout, says Property increases may pick up, particularly for Catastrophe Exposed Property. 

Prior to Sandy, Property insurance   already was among the lines seeing the most consistent rate increases in 2012, with loss costs generally being met, says Robert Hartwig, president of the Insurance Information Institute. But he believes the size of rate increases for personal and commercial properties won't change post-Sandy.

“The moderate momentum will continue in 2013,” says Hartwig, pointing out that while global catastrophe losses may have dropped in 2012 (compared to 2011, which had earthquakes in Japan and New Zealand, the subsequent tsunami in Japan, and flooding in Thailand), U.S. catastrophe losses will end up close to levels in 2011—thanks to the late-October superstorm. 

As of late December, two months after Sandy made landfall, there has been no clear evidence of a change in underwriting positions with regard to writing Property risks, according to Greg Di Prato, senior vice president in Lockton's Global Property Practice. 

Adds broker Marsh: “Sandy's full impact on Property insurance markets likely will be felt in the first half of 2013, with insurers expected to be less agreeable to rate decreases and to tighten policy wordings around flood, storm surge and windstorm.” 

Many industry analysts and experts have remarked that Sandy won't be a market-changing event, as industry surplus in the primary insurance market before the huge Northeast storm was at a near-record level. 

Similarly, the reinsurance market is well-capitalized and can manage losses from Sandy and still have enough available reinsurance capacity to exceed demand in 2013. 

Still, reinsurance broker Guy Carpenter says it did not expect a clear picture of Sandy's loss impact on insurers to be available before Jan. 1 renewals—“a level of uncertainty that may enter into reinsurance negotiations,” the company notes. 

Like many carriers in the primary market, Guy Carpenter views Sandy as an event “that will likely take months to fully sort through” because losses from the storm, such as those for Business Interruption, are so complex. 

RENEWED FOCUS ON UNDERWRITING PROFITABILITY

Another factor that continues to put pressure on pricing: Low interest rates continue to affect the market by weakening investment returns.

The Federal Reserve has linked interest rates to the level of unemployment, stating that interest rates aren't going to rise until unemployment falls below 6.5 percent or until inflation rises above 2.5 percent. Neither will happen in the immediate future, Hartwig forecasts. 

“No one believes there will be 6.5 percent unemployment in a year,” he says. “I'd love to be wrong, but I don't think so.”

Insurers' net investment income fell 4.1 percent to $35.1 billion after nine months in 2012, compared to $36.6 billion after nine months in 2011, according to ISO, a Verisk Analytics company, and the Property Casualty Insurers Association of America.  

As investment results fall, carriers will have to fall back on what they can control—rates—to hold returns on equity. With that is an expected continued focus on underwriting profit. 

ISO says underwriting profitability would have to improve by more than 4 percentage points for insurers to earn their long-term average rate of return—which explains why so many insurers have made priorities of solid underwriting and risk-based pricing.

Hartwig expects a modest underwriting loss for the industry in 2012, for the second consecutive year. As some companies will smokescreen these losses with more reserve releases, some analysts expect favorable prior-year reserve development to wane.

But analysts do predict better underwriting performance in the near term—though the double-digit returns experienced during the last hard market are doubtful. 

“Carriers are building an underwriting strategy by line of business with an emphasis on individual account profitability,” says Tim DeSett, executive vice president and risk practice leader at Lockton. “Lower investment income yields have put a heavier focus on pure underwriting profitability.”