Commercial market bottoming out, capacity decreasing

Despite the fact that capacity in the U.S. commercial insurance market is drying up, the market remains competitive, according to the Risk and Insurance Management Society (RIMS)’s 2009 Q2 Benchmark Survey.
The survey was produced by Advisen Ltd. It is based on policy renewal prices as reported by North American corporate risk managers.
The survey found commercial rates continue to drift downward despite the loss of US$81 billion in policyholders’ surplus in 2008, a joint RIMS and Advisen release says.
Policyholders’ surplus is a measure of insurance capacity. As surplus falls, the “supply” of insurance also decreases. Experts attribute the deteriorating investment markets as the principal cause in the decline in policyholders’ surplus.
“Insurance capacity is disappearing at a startling rate, but the market nonetheless remains competitive,” said David Bradford, executive vice president of Advisen Ltd. and editor-in-chief of the Benchmark Survey.
“As a result of the recession, the demand for insurance capacity also has decreased, which has kept pressure on rates,” he says. “Companies are downsizing, which means that there is simply less to insure.”
While the recession has worked to prolong the soft market, experts at Advisen believe the market is bottoming out.
General liability posted a 1.1% drop in 2009 Q2, compared to a 5% decline in the same period of last year. D&O increased 2.9%, a reversal of the 6.4% average decrease in 2008 Q2. Property premiums fell less than 1%, which compares to a 6.1% drop in 2008 Q2, the survey found.