Buyers expect overall drop in commercial premiums.

Risk managers expect continued softening of prices to produce a drop in overall commercial premiums for the first time in four years, accompanied by less restrictive policy terms, according to Prudential Equity Group's January 2005 commercial insurance buyers' survey.

Based on responses from 100 risk managers, representing a 38% response rate, the survey projects an overall drop of 4% for 2005, with average drops of 6% in property lines and 2% in casualty lines. In the equity analysts' last survey at midyear 2004, buyers predicted drops of 9% in property lines, flat pricing in casualty lines and a 3% drop in commercial premium overall.

More of the buyers also reported terms and conditions on policy renewals were less restrictive than they were a year ago, with 25% reporting looser terms, compared with 9% in January 2004, and 38% reporting that the renewal process is less challenging than a year ago, compared with just 19% in January 2004.

Nonetheless, despite the many trends pointing toward a softening commercial market, roughly the same number of buyers said they expected continued hard market conditions through 2005 as did in early 2004, according to the survey.

"These subjective components of property/casualty market conditions are critical because further margin improvement for insurers could be more difficult to achieve if policy conditions ease and negotiating power shifts toward the risk managers," analyst Jay Gelb wrote in an investors' briefing. "Looking ahead, about 80% of respondents expect the hard market to last through 2005 or beyond, signaling that the commercial market could enter a phase of stability over the next year rather than a quick return to destructive competition."