There may be hope in sight that the soft market has begun to harden. According to Towers Perrin's most recent commercial lines insurance pricing and profitability trends survey, the smallest decline in commercial property/casualty insurance prices in four years—less than 1%—offers optimism that the soft market is reaching its end.

The report goes on to say that prices for property and directors and officers (D&O) liability rose slightly in the first quarter of 2009. Prices for large accounts (annual premiums in excess of $50,000) also increased during the first quarter. This pricing upturn is not surprising, as large account prices eroded substantially more than middle-market and small accounts in 2007 and 2008. By comparison, small-account commercial prices continued their pattern of steady, but smaller, decreases.

None of the surveyed lines saw a deepening of price reductions from the fourth quarter of 2008 and, for lines where prices fell, all first quarter decreases were in the low single digits, Towers Perrin says.

"Premiums in many lines may be falling faster than prices in some segments of the market because lower payrolls, receipts, miles driven and other measures of exposures are declining due to the current economic climate," says Stephen Lowe, managing director of Towers Perrin's global property & casualty insurance consulting practice. "This reduced exposure from economic conditions may account for some of the disparity between the survey results and the surveys published by the insurance brokers."

Year-to-date through the first quarter, Towers Perrin's data indicates that accident-year 2009 loss ratios deteriorated 11% relative to 2008. This deterioration comes on top of an estimated deterioration for accident-year 2008 of 9% over 2007. Increases in claim costs and the "earning" of the price decreases taken in the last four quarters both contributed to loss ratio deterioration for 2009.

"More qualitatively, anecdotal evidence indicates that property insurance prices are continuing to rise in catastrophe-prone areas and declining slightly in non-catastrophe areas," Lowe adds. "This trend reflects the continuing high cost of property catastrophe reinsurance."

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