Preparing for the fall: risk managers usher in new soft market.

The beginning of another soft market was a hot topic among insurance industry leaders during the Risk and Insurance Management Society's annual conference and exhibition in San Diego.

Several key executives told risk managers and other members of the insurance industry that commercial premiums in two lines of insurance are beginning to drop. The RIMS Benchmark Survey, released April 21, showed that for the first time in more than four years, two major lines of commercial insurance--property and general liability--saw pricing decreases in the same quarter.

During the first quarter of 2004, commercial property premiums fell 1.5%, while general liability insurance fell by 1.4%, according to the survey. For property lines, it was the second consecutive quarter with a decrease. Property rates dropped by 8.8% during the fourth quarter of 2003, which was the first decline in premium prices for any major line of commercial insurance since 2000, the RIMS Benchmark Survey said.

Other lines of business, such as directors and officers, saw increases of less than 5%, RIMS said.

In addition, two large brokers released reports that also said the property insurance market is softening. Premiums are falling on average 10% for buyers of U.S. commercial property insurance, Aon Corp.'s 2004 U.S. Property Report said.

After increases in property rates of 42% in 2002 and 35% in 2001, property rates have fallen 15% in 2003, according to Aon.

Aon attributed the drop in premiums to improved investment returns, increased capacity and the absence of catastrophic losses during 2003.

Also, Willis Group Holdings Ltd. released a report on insurance market conditions that said the property market's capacity has grown significantly, which fueled competition and drove down prices. The group also said it has seen a reduction in deductible thresholds for programs that had experienced "over-correction" during the hard market.

Also supporting the case is a survey of the U.S. commercial property/casualty market, released by the Council of Insurance Agents & Brokers. That survey found that during the first quarter average premium increases for all sizes of property/casualty accounts appear to be returning to 1999 levels.

Commercial coverage is still expensive and hard to get in lines such as residential construction risks, umbrella coverage, workers' compensation and medical malpractice, the CIAB said. But the brokers surveyed for the report are more concerned that the cycle is turning soft.

"The market hardened across all lines after 9/11, like nothing else I had seen in my career, or even heard about," said Brian O'Hara, chief executive officer of XL Capital Group.

Most cycles are focused on one area or another, such as casualty insurance during the mid-1980s and property catastrophe during the early 1990s, O'Hara said. "But I don't think it's a free-fall," O'Hara said. "I think it's an adjustment."

RIMS by the Numbers

The Risk and Insurance Management Society Inc.'s annual exhibition and conference in San Diego broke attendance records for both participants and exhibitors. Here are some of the key figures:

* Total attendees: 11,000

* International attendees: 500+

* Risk professionals present: 4,000

* Exhibitors: 461

* Size of exhibit hall: 104,000 square feet

* Educational sessions: 120

* Number of speakers: 500

* Number of hot dogs and Italian sausages eaten at opening reception: 2,200

* Members of press in attendance: 90+

* Times the audience in the opening session burst into applause: 50+

Source: RIMS, A.M. Best Co.