RIMS Survey Finds Rising Commercial Rates

He noted, "The soft market appears to be winding down, but except for increases already taking place in some financial segments, there are no strong signals that rates will rebound sharply in the near future."

While directors and officers liability (D&O) policies renewed at higher premiums on average, the increase was due to financial sector companies–a segment that has been hit by the subprime mortgage meltdown and credit crisis. Property policies renewed at essentially no change, according to the survey.

D&O increased 2.9 percent, a reversal of the 6.4 percent average decrease in the second quarter of 2008. Excluding financial services companies, however, D&O policies renewed with a 4.1 percent average decrease. Property premiums fell less than 1 percent, which compares to a 6.1 percent drop in the second quarter of 2008.

Workers' compensation recorded a 2.8 percent average decrease in renewal premiums, as compared to a 1.7 percent drop in the second quarter of 2008, and general liability posted a 1.1 percent drop, compared to a nearly 5 percent decline a year ago.

Rates continue to drift downward, despite the loss of $81 billion in policyholders' surplus in 2008 and the first quarter of 2009, according to the Insurance Information Institute. Deteriorating investment markets was the principal cause of falling surplus. Policyholders' surplus is a measure of insurance capacity, meaning that as surplus falls, the "supply" of insurance also decreases, RIMS said.

"Insurance capacity is disappearing at a startling rate, but the market nonetheless remains competitive," Dave Bradford, executive vice president of Advisen Ltd. and editor-in-chief of RIMS Benchmark Survey, said in a statement. "As a result of the recession, the demand for insurance capacity also has decreased, which has kept pressure on rates. Companies are downsizing, which means that there is simply less to insure."

Falling demand has prolonged the soft market, but leading indicators tracked by Advisen Ltd.–most specifically the ratio of policyholders' surplus to U.S. Gross Domestic Product, which measures the supply of insurance capacity relative to the demand for that capacity–suggest that the market is close to its bottom.

NU Online News Service, July 28, 3:30 p.m. EDT

Despite poor financial results, competition among insurers continued to be high in the second quarter, but depletion of capital signals rising commercial insurance rates, according to the RIMS Benchmark Survey.

The survey of policy renewal prices, reported by North American corporate risk managers, also found that general liability and workers' compensation policies both posted average decreases in renewal premiums.

"If the gloom of the global recession has a silver lining for risk managers, it is the competitive insurance market," said Daniel H. Kugler, ARM, CEBS, CPCU, AIC, ACI, member of RIMS board of directors and assistant treasurer, risk management, at Snap-on Inc.

He noted, "The soft market appears to be winding down, but except for increases already taking place in some financial segments, there are no strong signals that rates will rebound sharply in the near future."

While directors and officers liability (D&O) policies renewed at higher premiums on average, the increase was due to financial sector companies–a segment that has been hit by the subprime mortgage meltdown and credit crisis. Property policies renewed at essentially no change, according to the survey.

D&O increased 2.9 percent, a reversal of the 6.4 percent average decrease in the second quarter of 2008. Excluding financial services companies, however, D&O policies renewed with a 4.1 percent average decrease. Property premiums fell less than 1 percent, which compares to a 6.1 percent drop in the second quarter of 2008.

Workers' compensation recorded a 2.8 percent average decrease in renewal premiums, as compared to a 1.7 percent drop in the second quarter of 2008, and general liability posted a 1.1 percent drop, compared to a nearly 5 percent decline a year ago.

Rates continue to drift downward, despite the loss of $81 billion in policyholders' surplus in 2008 and the first quarter of 2009, according to the Insurance Information Institute. Deteriorating investment markets was the principal cause of falling surplus. Policyholders' surplus is a measure of insurance capacity, meaning that as surplus falls, the "supply" of insurance also decreases, RIMS said.

"Insurance capacity is disappearing at a startling rate, but the market nonetheless remains competitive," Dave Bradford, executive vice president of Advisen Ltd. and editor-in-chief of RIMS Benchmark Survey, said in a statement. "As a result of the recession, the demand for insurance capacity also has decreased, which has kept pressure on rates. Companies are downsizing, which means that there is simply less to insure."

Falling demand has prolonged the soft market, but leading indicators tracked by Advisen Ltd.–most specifically the ratio of policyholders' surplus to U.S. Gross Domestic Product, which measures the supply of insurance capacity relative to the demand for that capacity–suggest that the market is close to its bottom.