Despite two major hurricanes and a global credit crisis, therelentless decline in commercial insurance prices continued in thethird quarter, according to a survey of insurance buyers.

The Risk and Insurance Management Society Benchmark Survey ofpolicy renewal prices, as reported by North American corporate riskmanagers, also found that lower insurance industry net income maysignal a coming turn in the pricing cycle.

"Frankly, the industry was pretty, and still remains somewhatover capitalized--it was very capitalized," Dave Bradford,executive vice president at Advisen, which conducts the survey,told National Underwriter. "So it's going to take a couple ofquarters of losses before we ring out that excesscapitalization."

Although he said he was not surprised by the findings, he addedhe was "maybe a little bit surprised just how much property andgeneral liability had come down--but we were expecting to see somefairly significant softening in this quarter."

Asked whether the stiffening of rates would take time to trickledown from reinsurers, he said, "Actually, I think the insurers aredoing a pretty good job themselves of destroying their capital atthis point in time."

The likely scenario, he said, is that "around second quarterthings will have bottomed out. If the losses continue to mount, weshould see some hardening by the end of the year."

He added that although the hardening will most likely happenacross all lines of business, "I suspect that D&O [directors& officers liability] will lead the charge back up again, justbecause it's getting battered so much right now."

John R. Phelps, member of RIMS board of directors and directorof business risk solutions at Blue Cross and Blue Shield ofFlorida, Inc., said in a statement, "It was a rocky third quarterfor insurers, but risk managers still saw prices improve onaverage. It is increasingly clear, though, that premiums cannotcontinue to fall at this pace, especially with the global economyin chaos."

The survey found that property coverage, with a decrease of 8.5percent in average premium, and general liability--which fell 9.6percent--led the market down in the third quarter. The averageproperty premium fell sharply despite as much as $20 billion ininsured losses from Hurricanes Gustav and Ike.

The 9.6 percent decrease in average general liability premium isthe largest single quarterly drop since 2005, Advisen said.

Triggered by the meltdown of the subprime mortgage market,skyrocketing claims slowed the rate of descent of the averageD&O premium, which fell by only 2.1 percent during thequarter.

Excluding financial and real estate companies from the sample,the average decrease was 7.4 percent. The average workers'compensation premium was nearly flat for the quarter, falling only.6 percent.

The crash of stock markets worldwide and a deepening globalcredit crisis led to investment losses for many insurers in thethird quarter. These losses, combined with deterioratingunderwriting results driven by falling premiums and mounting claimsfrom the subprime mortgage meltdown and the credit crisis, reducepolicyholders' surplus--the capital held by insurers to supportunderwriting activities, Advisen found.

A period of falling policyholders' surplus should hasten a turnin the pricing cycle. Commercial insurance pricing has beentrending downward since the beginning of 2004, Advisen said.

"Nearly five years of deteriorating rate levels are taking atoll on underwriting profits," Mr. Bradford said in a statement,noting, "A.M. Best forecasts a 2008 combined ratio of 104.0 for thecommercial property and casualty industry. Together with lowerinvestment returns as a result of the global credit crunch,conditions may be ripe for a reversal in the market cycle in2009."

The RIMS Benchmark Survey is produced by Advisen, which collectsand analyzes the data and provides the technology infrastructurefor the survey's online services.