A primary driver of the financial health of the insurance industry is the “State” of the rate cycle. Based on data compiled by The Council of Insurance Agents & Brokers (CIAB), the Commercial Property/Casualty Market Index for the fourth quarter of 2006 continued to reflect rate softening.  As the accompanying charts show, the magnitude at which rates were decreasing at an increasing rate during the fourth quarter crept up slightly from recent previous quarters; thus indicating that rates continue to trend downward, now at a faster pace, towards a yet to be known soft market trough.  Baring any unexpected shock loss events, rates are expected to continue to soften well into 2007.  A lot more about rate changes will become evident upon the completion of the busy first quarter renewal season.

Source:  Council of Insurance Agents & Brokers' Quarterly Commercial Insurance Market Index

According to the fourth quarter CIAB survey, insurer appetite continues to increase as premium rates continued to fall and underwriters became even hungrier for new business.  One respondent to the survey from the Midwest noted, “There is no underwriting”.  Another respondent from the Southwest was quoted as saying “Insureds are getting more for their money”.  Continuing, the CIAB report stated that “insurers [have begun] offering better and broader terms and lower deductibles for almost all classes of commercial property/casualty coverage.”  The CIAB’s survey reflected an average rate decline of 9.6% for commercial property and casualty accounts of all sizes; further mining into the survey data revealed an average decline of approximately 12.1% and 6.3%, for large accounts and small accounts, respectively.

For obvious reasons, as has been the case for several quarters now, the exception to the rule was costal properties.  In addition, according to the survey “earthquake and other coverages for cat-exposed property [have been] expensive and hard to find”.

The CIAB survey also reported that “in addition to general market softening in virtually all classes of property/casualty accounts, it appeared that the standard markets are making room for some accounts that previously were handled as surplus lines”.  In short, excess capacity is high across most commercial property/casualty lines and competition has begun to heat up as carriers vie for insureds’ premium dollars.