In recent weeks, executives of brokers and carriers have been delivering mixed messages about conditions in the commercial insurance market.

“The long curve, the larger trend, is bending in a positive direction for buyers.” John Drummond, head of Broking, North America for WTW, wrote in the executive summary to the Insurance Marketplace Realities Report published by the global broker and advisory firm in late April.

Chubb Chief Executive Officer Evan Greenberg had a different take on the first-quarter commercial insurance environment. “North America P/C rate and price increases reaccelerated in the quarter,” Greenberg said on an earnings conference call.

Carrier Management asked RLI Corp. Chief Operating Officer Jen Klobnak to weigh in. Often reporting earnings ahead of most other carriers, Klobnak has been first to identify market trends in D&O and property market in recent quarters. And RLI demonstrates its skill in spotting market opportunities and problems with a 27-year string of consecutive full-year underwriting profits.

“In the last couple of years, it’s been kind of a hard market across the board, and people got so excited. Everybody’s been able to make some progress on underwriting profit. It’s paid for some investments for people, which is great.”

“But we are in insurance, which means sometime it’s going to turn. No matter how much you try to improve, how you look at life—the softening of the market is a given in the insurance industry,” she stated.

She reported that D&O has been softening. And workers compensation “has been fighting that for quite a while actually,” she said, noting that the comp market is changing a bit now “with the different states getting a little more aware of what’s going on.”

“Auto is always a space [that’s] up and down.” Commercial auto insurers are seeing the same accident trends that personal auto carriers are experiencing. “And it’s just the classic competition coming in. They are aware that you can make an underwriting profit, but they have to buy their way into the market. So, that’s what they do, which softens everybody.”

“Then you have to determine if you want to make a consistent underwriting profit so you can be there for your insured and your producers over time. You’ve got to decide how much you can give away. And in some cases there is a limit to that,” she told Carrier Management, echoing some remarks she made on a first-quarter earnings call about the trucking segment of the commercial auto space, in particular.

“I don’t understand why, but people don’t appreciate that 2020 was a lull,” she said on the earnings call, noting that trucking competitors incorporate that down-year for losses into their go-forward pricing. “But in reality, there are accidents every day,” she said, noting that more insurance markets are also entering the trucking space every day. “It’s frustrating because you’re going to have claims. So, you need to charge enough to cover that,” she said.

Concluding her overall commercial insurance market assessment during the Carrier Management interview a few weeks later, she said, “I think people got so excited about it being hard across the board that now everybody’s going to be dramatic and disappointed about the fact that, yes, we’re going to have a soft market someday. And it is happening in a couple of spots. But then you can contrast that with the property market, which still remains very hard. So, we just have to get our insurance hat back on and say this is how it works and let’s manage the portfolio accordingly.”

Asked to share her observations on the reinsurance market, she referred to commentary she delivered about Jan. 1 renewals during a year-end earnings conference call. “It was painful, to say the least, in the fourth quarter as we were gearing up for 1/1,” she said.

During the fourth-quarter call, Klobnak reported that the specialty insurer made some anticipatory moves on property—raising prices and honing terms and conditions, including loss-sharing features like coinsurance and deductibles—throughout 2022. But when asked directly about passing on a 40 percent jump in RLI’s reinsurance costs to customers, she described a measured approach. “As we look at our renewal process, we quote 30 days to 60 days out, so that we can help our insurers manage their business. They’ve got a lot of increased costs already. They’ve got increased employee costs,…transportation costs, all kinds of costs that are going up. We’re one component of their business. And we try to help manage their ability to stay in business by not taking too drastic of actions.”

“In contrast, I would say, the reinsurance market acted a little more quickly on their change—on both attempted change in coverage as well as cost. And so, it’s difficult to turn on a dime and pass that along, nor is it really something you want to do when you’re trying to be very consistent in the primary market.”

Even in Florida, RLI continues to individually underwrite each renewal, she reported during the January earnings call. “Yes, our costs have gone up. So, yes, we will increase costs to some extent. But we’re going to try to manage it over time so that our insureds can continue to be insured,” she said, noting that RLI’s broker partners are also accepting a little bit less commission “so that we’re able to provide that change in coverage and terms a little more gracefully to our insureds.”

“The danger of [any] abrupt change is that the insurance marketplace actually decreases because people will attempt to buy less coverage or less limit. And once they start doing that, that’s never going to come back,” she said.

Picking up on that theme during the Carrier Management interview, Klobnak said, “It’s very difficult when people move too quickly. This is an industry that really moves somewhat slowly. You don’t take too much drastic action up or down usually. But that was a drastic change for 1/1. And it’s continued on, my understanding is, through the year,” she said, noting that RLI has some renewals through July.

“We’re going to deal with it like we always do, which is to tell the RLI story. We tend to have fairly good results. And so we’re going to get our story out there: How are we different than our competitors?”

Solidifying some of the strong partnerships RLI has built up with reinsurers over time, the COO said the company invests time to make sure reinsurers are getting the answers they need.

Still, RLI is ceding less to its reinsurers in 2023. Having increased property and casualty treaty retentions at 1/1 (some first-dollar and in the form of co-participation on the side of a treaty), Klobnak said the specialty insurer is likely to take similar actions as other treaties come up for renewal.

“We’ve actually made a gross underwriting profit for 27 consecutive years,” in addition to a net underwriting profit, she said, supporting decisions to increase retentions. “We probably want to increase retention a little bit across the board to make sure that we’re balancing—because not every product makes an underwriting profit every year,” affirming that RLI will continue to look at opportunities to take more net in one way or another.

“We’ll continue to do that throughout this year. And if the reinsurance market continues to be hard, I think we’ll look at that again on 1/1 as well,” she said.