Property, with an 8.5 percent decrease in average premium, and general liabilityâwhich fell 9.6 percentâled the market down in the third quarter. The average property premium fell sharply despite as much as $20 billion in insured losses from Hurricanes Gustav and Ike. The 9.6 percent 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 (D&O) premium, which fell by only 2.1 percent during the quarter. Excluding financial and real estate companies from the sample, the average decrease was 7.4 percent. The average workers' compensation premium was nearly flat for the quarter, falling only 0.6 percent.
The crash of stock markets around the world and a deepening global credit crisis led to investment losses for many insurers in the third quarter. These losses, combined with deteriorating underwriting results driven by falling premiums and mounting claims from the subprime mortgage meltdown and the credit crisis, reduce policyholders' surplusâthe capital held by insurers to support underwriting activities. A period of falling policyholders' surplus should hasten a turn in the pricing cycle. Commercial insurance pricing has been trending downward since the beginning of 2004.
"It was a rocky third quarter for insurers, but risk managers still saw prices improve on average," says John R. Phelps, ARM, CBCP, CPCU, member of RIMS board of directors and director of business risk solutions at Blue Cross and Blue Shield of Florida, Inc. "It is increasingly clear, though, that premiums cannot continue to fall at this pace, especially with the global economy in chaos."
"Nearly five years of deteriorating rate levels are taking a toll on underwriting profits," says Dave Bradford, executive vice president at Advisen. "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."
About The RIMS Benchmark Surveyâ¢
The RIMS Benchmark Surveyâ¢ is produced by Advisen, Ltd., which collects and analyzes the data and provides the technology infrastructure for the survey's online services. Advisen introduced the Data Participation Letter that enables risk managers and buyers of insurance to contribute to the RIMS Benchmark Surveyâ¢ by designating their broker to provide the client's program details. The letter is available at www.RIMS.org/brokerform or by calling 800-655-6590. Risk management professionals can also contribute by e-mailing current and prior year policy schedules to Benchmark@RIMS.org or by faxing to 212-655-7453.
Risk managers who contribute data to the survey can benchmark the structure of their commercial insurance programs, retained loss costs, exposure demographics and Total Cost of Risk (TCOR) against a highly-relevant group of peer companies. Additionally, survey respondents can use software personalized and configured for their needs to view detailed schedules of insurance, programs for current and past years and full-color program tower charts. Both benchmark charts and program charts download into any presentation for senior management. The results of the RIMS Benchmark Surveyâ¢ are available online or in an annually-published book. Visit www.RIMS.org/benchmark for details.
Advisen Ltd. equals success for insurance professionals, driving growth and profitability through the broadest platform of analytics and information services. Designed and evolved by risk and insurance experts, and used daily by more than 100,000 professionals, Advisen combines the industry's deepest data sets with proprietary analytics and applications that drive the risk and insurance lifecycle. Advisen is headquartered in New York with offices in London.Â For more information, visit www.advisen.com or call 212-897-4800.