Lower net income could signal turn in pricing cycle

Lower insurance industry net income may signal a turn in the insurance pricing cycle, according to a RIMS Benchmark Survey.
This is despite the failure of two major hurricanes and a global credit crunch to derail the soft commercial insurance market in the third quarter.
Property, with an 8.5% decrease in average premium, and general liability which fell 9.6% led the market down in the third quarter. The average property premium fell sharply despite as much as US$20 billion in insured losses from Hurricanes Gustav and Ike, according to the survey.
The 9.6% decrease in average general liability premium is the largest single quarterly drop since 2005. Skyrocketing claims triggered by the meltdown of the subprime mortgage market slowed the rate of descent of the average directors’ & officers’ liability premium, which fell by only 2.1% during the quarter, RIMS said.
Excluding financial and real estate companies from the sample, the average decrease was 7.4%.
“Nearly five years of deteriorating rate levels are taking a toll on underwriting profits,” said Dave Bradford, executive vice president at Advisen, who conducted the survey on behalf of RIMS. “A.M. Best forecasts a 2008 combined ratio of 104.0 for the commercial property and casualty industry. Together with lower investment returns as a result of the global credit crunch, conditions may be ripe for a reversal in the market cycle in 2009.”