The commercial insurance premium market cycle is near bottom and general commercial insurance prices will start to rise by the fourth quarter of 2009 or the first quarter of 2010, Advisen Ltd., predicted earlier this week.
Advisen estimated the property-casualty insurance industry was roughly $100 billion overcapitalized as of the end of 2007. It said policyholders' surplus–statutory accounting terminology for the capital supporting underwriting operation–needed to be reduced by about $100 billion through losses, dividends, share buy-backs or other means to bring insurance supply in line with demand.
Advisen said that U.S. policyholders' surplus declined $36.8 billion, or 7 percent, for the 12 months ended Sept. 30, 2008, according to A.M. Best. Consultancy Towers Perrin forecasted as much as an $80 billion decrease in surplus by the end of 2008. Advisen added that while $80 billion represents a significant sum of the $100 billion in excess capacity–moving the market much closer to the bottom of the soft market cycle–the demand side of the equation also has changed since the end of 2007.
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