With another year’s data to review, the problems from 2015-2018 policy years are increasingly clear. While large law firms are paying more now than they did last year, they are also generating more and larger claims. As a result, insurers must remain viligant, and must maintain pressure on both rates and limits to ensure the long term viability of deployed capacity.
As we said last year, the numbers continue to speak for themselves.
Our analysis is based on on-level premium of approximately $6.35B from 2008 – 2020, and on aggregated internal submission data reviewed through September 1, 2021. The charts below first exclude, then include an annual loss cost trend assumption of 2.5%. 2020 is still relatively immature at this point, with estimates largely driven by IBNR but does not include inflation which also must be factored in.
7 years ran above 70% Loss Ratio, of which 5 years ran above 80% Loss Ratio.
Still the only recent year with adequate margins.
Some early signs of improvement, likely due to rate increases, although still rather immature.
More complex suits and higher defense/settlement costs will cause continuing problematic trended results. If we include inflation then this looks even worse.
The Lawyers Professional Market clearly needs to continue pushing rate.
Our analysis of the difference between primary and excess layers is based on on-level premium of $2.7B for primary and $1.4B for excess from 2008 – 2020, and on aggregated internal submission data reviewed through September 1, 2021.
The charts below exclude any annual loss cost trend assumption but does not include inflation which also must be factored in.
Primary loss ratios remain higher than excess layers - currently 24.5 Points.
Indications are down ~10 Points vs 2020 analysis due to rate, but 72% LR does not deliver an Underwriting Profit.
As expected - in the long term excess layers run better than primary, but with greater volatility.
Excess writers have been adversely affected by multiple severity losses in 2015 and 2018. These years have more development to come.
Many excess writers face a challenge with the imbalance between premiums vs limits deployed.
A combination of rate increase and limit reduction is warranted.
Our analysis of severity, large loss claims and estimated industry reported losses is based on estimated ground-up losses valued at $5 million or more. These total $8.5B across all years.
The source of the data is both public information and submission - data reported losses, coupled with perclaim limit (layer share and 100%) and SIR/Attachment Point information.
The ground-up estimate could be understated to the extent higher layers of the tower and/or SIRs are unknown, or layer shares (when estimated) are not correct. Alternately, some claims information is at the per policy level rather than the per claim level, so the ground-up estimated loss could be overstated to the extent the total loss for a policy is comprised of more than one large claim.
2015 and 2018 continue to be problematic.
They are still not fully developed - in the past 12 months those years combined have seen ~$260M development from losses over $5M.
2016 and 2017 are each up about $200M in incurred losses from claims over $5M compared to last year.
To date, we have observed 153 claims greater than $5M from 2015 to 2018 and an additional 23 in 2019. These years are still not fully developed.
2009 and 2013 each show > $120M in unexpected losses, mostly from claims in the > $100M or > $50M - $100M bands.
Our analysis is based on rate changes reported in submissions reviewed through January 1, 2022.
Policy Year 2021 rate changes are based to some extent on budgets or partial year figures.
Note also that the data sources used to compile the rate change information do not exactly mirror those used to compile the gross loss ratio analysis figures.
2011 hit a low of premiums vs exposure, as Financial Crisis losses were paid.
2011-2017 premiums per exposure flatlined before 2018/2019 rate improvements finally returned the index to slightly above 2008 levels.
As carriers have paid the losses already shown, rates rose 11.5% in 2020 and an estimated 9.0% in 2021. While this is a step in the right direction, more must be done to enable a long term sustainable marketplace.
Note: For rate to keep up with a modest loss cost trend of 2.5% from 2008, the index would now have to be at 1.400. It is at 1.275.
Progress has been made in the past few years: large law firms are paying more for their insurance capacity.
However, large law firms also continue to generate both a higher frequency and severity of claims.
As noted, 2015-2018 policy years already exhibit worrying frequency and severity trends.
Once again, we must note the need for carriers to continue to address prices and self insured retentions to better reflect the risks being assumed.
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Our analysis of the lawyers’ liability market is based upon the insurers we serve, and the data we receive. As a result, the underlying data is not identical to last year’s analysis. Large law firms are predominantly insured by carriers that write in multiple states and focus on firms with 25 or more attorneys. Our analysis therefore excludes data from mutuals, captives and risk retention groups.