RIMS: Soft Market Slogs On Despite Lower Earnings

As insurance company earnings begin to show the strain of eroding rate levels, average premiums fell for all major commercial line insurance in the second quarter of 2008, according to RIMS Benchmark Survey, an industry survey of policy renewal prices as reported by North American corporate risk managers.

After dropping sharply in the first quarter, the average Directors' and Officers' (D&O) premium fell a comparatively moderate 6.4 percent in the second quarter. D&O claims related to the subprime mortgage crisis continue to mount, but so far only financial and real estate firms with subprime exposure have experienced price increases.

The 6.1 percent decrease in premiums for property insurance essentially repeated first quarter price decreases for renewals, even though forecasters now predict a severe hurricane season. The decrease in average general liability premium was nearly five percent, up from two percent in the first quarter. After an unexpected 11 percent drop in the first quarter, the average workers’ compensation premium fell just 1.7 percent in the second quarter.

“We are now in hurricane season and a bad storm could bring a quick end to the soft market,” says John Phelps, member of RIMS Board of Directors and director of business risk solutions for Blue Cross and Blue Shield of Florida Inc. “While the direction of the market could change quickly, pricing trends otherwise continue to be favorable for risk managers. Reinsurers and primary markets are agonizing over falling premiums, but they also are concerned about forecasts of higher than normal hurricane activity this year.”

“Insurer’s net profit plunged in the first quarter, due largely to falling rate levels,” says David Bradford, editor-in-chief of Advisen. “But the property and casualty industry is still overcapitalized, which continues to put downward pressure on premiums. It is still very much a buyer’s market, and should remain so, at least through 2008.”