With deterioration in profits assured for the final weeks of 2008, insurers may finally stop cutting prices, according to a brokerage firm analysis.

Lockton, in its Fall 2008 Market Update, said as carriers enter the year end they face "ominous" circumstances, and it is "certain" that the industry combined ratio, which was at 102.2 in the first half, will continue deteriorating.

While the situation is not desperate, because insurers are capital-rich, "declining profits, deteriorating underwriting results, shrinking capacity, the credit market challenges, a slowing economy and specific problems at some insurers are creating a volatile mix of issues that could pressure insurance prices in the coming weeks and months," the report stated.

It says further that deteriorating underwriting and investment performance is expected to drain off up to $80 billion or 15 percent of industry surplus, and this factor combined with higher reinsurance rates and a realization that risk portfolios are not adequately priced "is signaling an end to the soft market," Lockton said.

Insurer profits declined 57 percent to $13.9 billion in the first half, the industry posted its worst first-half year underwriting performance since 2002, investment returns declined by 18 percent, and net written premiums for the industry as a whole were stagnant. Also, catastrophe losses were "double the average of the past decade," Lockton reported.

Property, casualty, executive risks, aviation, energy, construction, real estate, employee benefits, and other insurance and reinsurance markets, including Lloyd's, are covered in the 61-page report, which can be found online at www.lockton.com.

It also contains the firm's analysis of potential technology liabilities and identity theft as well as the new Corporate Manslaughter and Homicide Act in the U.K.

Concerning executive risks, Rodger Laurite, Lockton senior vice president in Atlanta, noted that continued volatility in the financial markets could mean that securities litigation levels will continue to rise.

Although the directors and officers liability insurance market has been soft for most buyers, "we recommend that clients use this time to prepare for their upcoming renewals. It is important that clients take steps to differentiate themselves so that they avoid being lumped in unfairly with their peers," Mr. Laurite said in a statement.

For the energy insurance market, offshore and onshore, Lockton said there are signs that rating levels are flattening out.

In the property insurance market, Lockton said repercussions from big hurricane losses and the meltdown in the financial markets are just beginning to be felt, and insurance buyers should prepare themselves for a period of uncertainty and volatility.

For construction, Lockton said workers' compensation and general liability has been seeing price cuts from 10 to 20 percent on average, and that for controlled insurance programs/wrap-ups, insurers continue to be aggressive.

Concerning executive lines marketplace, where American International Group is the largest player, Lockton said the financial crisis at AIG is having an impact and that there could be a decrease in its capacity, which would force buyers to look for coverage elsewhere.

Special Reports /

Hard Market Ahead, Says Lockton

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