Tag Archives: lawyers professional liability

Lawyers professional liability update: Insurers’ string of strong financial results continues

Financial results for 2013 are strong for specialty writers of lawyers professional liability (LPL), with operating ratios at the lowest levels in more than 10 years, insurers returning 30% of their net income to policyholders in the form of dividends, and an all-time high in industry surplus, among other measures.

This issue of P&C Perspectives, authored by Susan Forray and Andy Kline, analyzes the financial results of a composite of 14 specialty writers of LPL coverage for solo practitioners and small firms. The article examines operating results, reserve releases, claim frequency, capitalization, and net retentions.





Lawyers professional liability insurers exhibit strong financial results

Specialty writers of lawyers professional liability (LPL) insurance exhibited strong financial results in 2012. The operating ratio for the LPL industry was about 77%, an eight-point improvement over 2010 and 2011. Again insurers were able to release reserves, and a large portion of the releases were returned as policyholder dividends. The industry’s surplus also reached an all-time high, having increased 7% over 2011.

To understand the state of the LPL industry today, Milliman’s Susan Forray and Shaun Cullinane performed an analysis of the financial results of a composite of the 14 specialty writers of LPL coverage for solo practitioners and small groups.

Here is an excerpt from their analysis:

The industry’s strong operating results in 2012 were the result of an increase in reserve releases as well as an apparent improvement in the 2012 coverage year itself. However, this should be put in the context of the preceding years. The operating results of the period 2008 to 2011 were worse than those experienced in the prior 15 years—even worse than during the previous soft market of the late 1990s through 2001 (see Figure 1). The favorable operating results of 2012 can thus be seen as a return of the industry to results that were more typical of the decade preceding 2008.

Reserve releases for the period 2008 to 2012 have been comparable to those in the five preceding years (see Figure 3 on page 2). Taken together with the greater calendar year loss and allocated loss adjustment expense (ALAE) ratios observed during this time, this suggests that the industry expects the coverage years 2008 through 2012 to produce loss and ALAE ratios higher than those of the preceding years. This is consistent with the moderate rate decreases taken during this time period. Coupling this issue with the greater frequency experienced during this time period only serves to compound the effect of the lower rate levels.

Read the entire analysis in the latest issue of P&C Perspective.





Assessing the lawyers professional liability industry

Specialty writers of lawyers professional liability (LPL) continue to exhibit stable financial results in 2011. The industry surplus is also at an all-time high, providing additional capital support for the current soft market. At the same time, operating results since 2008 have been somewhat less profitable than preceding years.

To discern the state of the LPL industry today, Milliman’s Susan Forray and Shaun Cullinane performed an analysis of the financial results of a composite of the 14 specialty writers of LPL coverage for solo practitioners and small groups.

Here is an excerpt from their forecast:

While currently in a strong financial position, the above observations have the potential to produce future operating results that are dramatically different from the historical experience of the industry. Loss and loss adjustment expense (LAE) ratios are currently projected by the industry to be about 10% higher than they were five years ago; however, frequency appears to be about 20% higher than the nadir of this time frame. Combined with an increase in severity over the same time period, these factors themselves may be sufficient to eliminate the favorable reserve development that has been the historical pattern of the industry. While operating results have been profitable to date, without favorable reserve developments they would have been roughly break-even in most years. Thus, if rates prove inadequate going forward, and without favorable reserve development to rely upon, the industry may experience unprofitable operating results as a whole for perhaps the first time.

Download the newest issue of our P&C Perspective and read the entire analysis.