Commercial Rates Flat For Now: Advisen

While banks and other financial institutions bought directors and officers insurance at substantially higher rates, the rest of the commercial insurance market in the first three months of 2009 saw a continuing trend of little or no change in rates, according to the survey.

"It's a mixed bag," Dave Bradford, Advisen's executive vice president and editor-in-chief of RIMS Benchmark Survey, told National Underwriter. "We still see general liability and workers' compensation drifting down a little. Property is pretty much flat and D&O is up a bit, but that's driven entirely by the financial services sector."

He added that rate decreases are still being seen in the commercial D&O area. "Unless there's a big catastrophe, we don't think rates are going to turn drastically."

Mr. Bradford expects there will be some firming, but "nothing dramatic," noting there is "still a lot of capacity in the market place." In the property sector, he added that while the survey found rates were "dead flat" in terms of the averages, "behind that was quite a bit of activity, both on the upside and the downside, and clearly there's more pressure on properties in catastrophe-exposed areas. That's where we're starting to see the hardening taking place." (For another perspective on the property market, page 45.)

Another factor is that reinsurers are starting to push up catastrophe premiums, he said. "That's going to trickle down to the primary pricing as well."

The average property renewal was flat for the first quarter as compared to a decline of 3.8 percent in the fourth quarter of 2008. There was a wide range of changes in recent renewal premiums for individual property risks, with premium changes varying from a decrease of 11 percent to an increase of 14 percent.

The D&O market continued to be split between financial institution risks and all other commercial risks, according to the survey. Overall, the average D&O premium increased by 3 percent, but the increase was driven entirely by financial companies. Excluding financial firms, the average renewal was down 3 percent.

Higher financial institution premiums are the outcome of massive losses from the meltdown of the subprime mortgage market and the ensuing credit crisis. By comparison, overall D&O rates fell 1.2 percent in the fourth quarter of 2008 and fell 4.5 percent during that period excluding financial firms.

The results reported by Advisen were similar to results released by the Council of Insurance Agents & Brokers earlier this month, which found based on its quarterly survey of members that average rate declines for the first quarter stood at 5.1 percent, slightly better than the fourth quarter's decline of 6.4 percent.

The fourth-quarter average decline was the first to fall below double digits since the first quarter of 2007, according to CIAB.

"We saw some rates creeping up as the impact of the weak economy and increases in reinsurance took hold in the primary market," said CIAB President Ken A. Crerar in a statement. "It was by no means a dramatic turnaround and insurers continued to be very competitive out there, but the line on rates appeared to be holding, particularly on renewals."

At the RIMS annual conference in Orlando, Daniel H. Kugler, member of RIMS' board of directors and assistant treasurer, risk management at Snap-on Inc., corroborating the Advisen results, said, "Most risk managers continue to see flat or slightly lower premiums at renewal."

"The insurance market is still very competitive and, while some insurers are predicting an imminent hard market, there are few signs that rates will rise sharply any time in the near future," Mr. Kugler said.

Separately, last week, Willis released a report outlining reasons for the hard market delay, citing record 2006 and 2007 surpluses, few impediments to new entrants, and competition with American International Group.

Even though competition for market share typically fades when insurers look to underwriting as a way to make up for poor investment results, companies are competing hard for AIG business, according to the report by the brokerage firm.

The report, which was a "Spring Update" to an earlier report titled "Marketplace Realities and Risk Management Solutions," said, "The extraordinary circumstances surrounding the world's leading insurance market, AIG, is a major reason this pattern has not been followed."

Insurers "seem overly focused, sometimes intensely so, on the possibility or wresting business away from the market leader," Willis said, adding that many in the industry seeing a "fundamental marketplace shift in the works, and they want to make the most of the opportunity."

Smaller companies, Willis said, may see opportunities as buyers "grow more interested in diversification," creating competition many in the industry did not expect.

(Additional reporting by Mark Ruquet and Phil Gusman)