RIMS Q4 Survey Shows Slowing Soft Market

Insurance premiums for businesses continued a five-year trend of falling rates during the fourth quarter of 2008, but recent data suggest a reversal of this trend may soon be underway.

Rates for property, general liability, and directors’ and officers’ (D&O) insurance premiums all decreased at a materially slower pace than in recent quarters, according to RIMS Benchmark Survey of policy renewal prices as reported by North American corporate risk managers.

Data from RIMS Benchmark Survey corroborates Advisen’s recent forecast that the commercial insurance premium market cycle is close to its bottom. Commercial insurance prices should begin increasing by the fourth quarter of 2009 or the first quarter of 2010, according to Advisen analysts. 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. Property premiums were off by 3.8 percent, again modest when compared to the 8.5 percent decline in the third quarter. Workers’ compensation continues to reflect little volatility with a 0.8 percent decrease in the fourth quarter, consistent with a two-year trend.

Unsurprisingly D&O continued to show two trends: an increase for financial institutions buying insurance in the face of a meltdown in that sector and falling average premiums for commercial business in other sectors. D&O rates fell 1.2 percent in the fourth quarter, down from 2.1 percent in the third quarter. Excluding financial institution buyers of insurance, the fall in premiums was 4.5 percent in the fourth quarter, as compared with 7.5 percent in the third quarter.

“Risk managers tracking RIMS Benchmark Survey™ results are keenly aware that we may not see continued price reductions for long,” says Daniel Kugler, member of RIMS board of directors and assistant treasurer, 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.”

“Overcapacity has driven a long soft market and the events of this past quarter may portend a market shift for commercial insurance,” says Dave Bradford, executive vice president at Advisen. “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. 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.”