Despite Hurricane Losses, Soft Insurance Market Continues

May 9, 2006

Although property & general liability insurance rates increased in the first quarter of 2006, all indications point to a continuing soft commercial insurance market according to the Risk and Insurance Management Society (RIMS) Benchmark Survey, a survey conducted by Advisen Ltd. of current policy renewal prices as reported by corporate risk managers.

In keeping with the soft market conditions evidenced in the past six quarters, directors and officers (D&O) premiums dropped three and a half percent in the first quarter of 2006 and worker’s compensation rates declined just more than 3 percent.

The property and casualty insurance industry overall turned a profit in 2005, according to survey officials, despite ever-dropping prices and a projected $58 billion in hurricane losses. That suggests competition among carriers would provide for a continuing soft market.

The enduring effect of last fall’s hurricane season was still evident in property premium renewals as 70 percent of survey respondents reported higher premiums. Average rates rose by nearly 7 percent in the first quarter of this year, although Advisen analysts suggested the market buoyancy was due more to underwriter support than to underlying market conditions. Property premiums increased in the fourth quarter of 2005 after having steadily declined since the third quarter of 2003.

“The property pricing increases were a knee-jerk reaction by underwriters to the hurricane catastrophe losses, but probably will not be sustainable,” said David Bradford, editor-in-chief at Advisen. “The insurance industry posted a profit for 2005 despite record catastrophe losses and experienced strong growth in policyholders’ surplus, indicating that rate levels are still stalwart and capacity is abundant in most lines. Conditions are ripe for further softening.”

“The insurance market understandably appears a little unsettled by the massive hurricane losses of 2005,” noted Karen Beier, member, RIMS board of directors, membership and chapter services portfolio. “However, risk managers may experience further softening in the casualty market. Barring more major catastrophes, premiums should fall further this year.”

General liability rates experienced an upward swing of 5.1 percent; previous quarter survey data showed steadily falling premiums since the fourth quarter of 2003. Advisen analysts believe that general liability premiums may have been temporarily pulled higher by the spike in property premium levels, but will return to the pervasive softening trend by next quarter.

The results of the RIMS Benchmark Survey are available online, published continuously throughout the year, as well as in a book, published once each year. Visit for details.

Topics Catastrophe Natural Disasters Profit Loss Trends Hurricane Property Market Pricing Trends

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