Surveys See Soft Market Bottoming Out Before Long

Mr. Bradford noted that the big "monkey wrench" in all the projections is what will happen with the struggling economy.

A number of factors are converging, but one that stands out over the last couple of quarters is that "not only are underwriting losses higher, but the investment side is performing very poorly," he said. "A lot of companies posted investment losses for the third quarter and they may for the fourth quarter as well, so that's a fairly strong harbinger for the end of the soft market."

Mr. Bradford, whose Advisen firm conducts the Benchmark Survey for RIMS, cited "an unusual convergence of effects here. It was a heavy year for cat losses, and there were the losses arising from the subprime meltdown and the credit crisis, but then there were also the investment losses arising from it as well, so all those factors have started to put some real pressure on insurers to raise premiums."

He said he expects buyers will begin to see premiums rise by July 1 renewals.

"Risk managers tracking RIMS Benchmark Survey results are keenly aware that we may not see continued price reductions for long," added Daniel H. Kugler, a member of the RIMS board of directors and assistant treasurer of risk management at Snap-on Inc. "The most recent data show that the soft market isn't over yet, but it may be losing steam."

Data from the survey corroborates Advisen's recent forecast that the commercial insurance market cycle is close to its bottom, with Advisen analysts projecting that prices should begin increasing by the fourth quarter of 2009 or the first quarter of 2010.

The average general liability premium fell more than any other line at 5.9 percent in the fourth quarter, "but this decrease is modest when compared to the 9.6 percent decline in the third quarter," Advisen reported. "Property premiums were off by 3.8 percent, again modest when compared to the 8.5 percent decline in the third quarter."

Advisen said workers' compensation continues to reflect little volatility with a 0.8 percent decrease in the fourth quarter, consistent with a two-year trend.

D&O continued to show an increase for financial institutions buying insurance in the face of a meltdown in that sector, while falling on average in other niches.

D&O rates fell 1.2 percent on average in the fourth quarter, down from a 2.1 percent drop in the third quarter. Excluding financial institution buyers, the fall in premiums was 4.5 percent in the fourth quarter, as compared with 7.5 percent in the third quarter, according to the report.

"Overcapacity has driven a long soft market, and the events of this past quarter may portend a market shift for commercial insurance," Mr. Bradford said in a statement. "In addition to much higher than average catastrophe losses in 2008, insurance companies are facing claims from the subprime meltdown, global credit crisis and now even from the Madoff scandal."

Mr. Bradford added that "reserves for these claims and material losses in investment income have led to negative earnings, and new capital is scarce. We expect the next few quarters of data from the RIMS Benchmark Survey to show the end of the soft market." (For information on how to participate in the survey, visit www.RIMS.org/benchmark.)

Meanwhile, commercial property-casualty rate decreases showed definite signs of leveling off in the fourth quarter of 2008, according to a separate study–the "Commercial P-C Market Index Survey," conducted by the Council of Insurance Agents & Brokers.

"We see evidence in the fourth quarter that premium rates eased as insurers tried to hold the line on pricing," said CIAB President Ken A. Crerar. "It's still a competitive market, but we think this may signal the bottom of the soft market, following six years of steady decline."

"We will see if this trend continues in the first quarter of 2009 as price increases in the reinsurance market begin to trickle down, and as the full impact of the economy and market conditions comes home to roost on insurers' bottom line," he added.

During the fourth quarter, 43 percent of the agents and brokers responding to the CIAB survey reported that premiums for small accounts were down 1-to-10 percent, with 35 percent reporting no change in premiums compared with the third quarter.

For medium-size accounts, 50 percent said premiums were down 1-to-10 percent, while 17 percent saw decreases in the 10-to-20 percent range. Eighteen percent said there was no change in rates compared to the last quarter.

Premiums for large accounts saw more slippage, but not as much as the third quarter. Forty-one percent of respondents said rates declined 1-to-10 percent. Twenty-one percent said rates dropped 10-to-20 percent, and 17 reported no change in rates since the third quarter.

For D&O premiums, 17 percent of respondents reported a 1-to-10 percent increase, 36 percent reported no change, and 21 percent said rates declined 10-to-20 percent.

An analysis of the CIAB's survey findings by Barclays Capital Equity Research said premiums for the average commercial account declined 6.4 percent during the fourth quarter.

For large accounts, rates were down 8 percent; for medium accounts, renewal premiums were down 7.1 percent compared with the third quarter; and for small accounts, the renewal premiums averaged a 4.2 percent decline.