RIMS study reveal a stubborn soft market

Premiums in the commercial insurance industry continued along the path of an 18-month long down market, according to the RIMS Benchmark Survey – compiled by Advisen Ltd. yet the market suggests it may still be poised for a change.
Renewal prices balanced between stabilization and a slight increase for some lines of business, but indicators of market direction signaled further declines. General liability, for example, showed clear signs of firming, but property fell a further 4.3%in the latest quarter.
"Indications are that the market is near its bottom and waiting for a catalyst to nudge it in the other direction," Karen Beier, member, RIMS Board of Directors, Membership and Chapter Services portfolio says, "but it is still unknown what that catalyst will be."
Contradictory indicators deliver proof of the first soft market since 1998. Such proof is indicative in the fact that directors and officers liability insurance has recently suffered some of the steepest premium declines of any major line. Prices continued to decline this quarter, but anecdotal information indicates that larger insureds are experiencing stable-to-increasing premiums.
Larger, macro-economic conditions also demonstrate the contradictory nature of the market. Overall, the property and casualty industry continues to enjoy strong financial returns, which typically portends heightened competition and falling rates. However, an analysis of other factors suggests that prices may be on the verge of strengthening.
"Rates fell sharply across most lines through the last quarters of 2004, but those decreases are only now being reflected in earned premium," David Bradford, editor-in-chief at Advisen, says. "As the effect of reduced prices hits the financials of insurance companies, and without strong investment income and capital gains to offset underwriting losses, we can expect to see prices turn upward again."
Additional loss reserve increase, earnings adjustments following the reassessment of finite reinsurance transactions and continuing losses from natural disasters could impact earnings and erode capacity, and place more pressure for increases in premium levels.
"This could be a lull before another round of price declines, or, more likely, it could be the last gasp of a shallow and relatively short-lived soft market," Bradford adds.