The smallest decline in commercial property & casualty (P&C) insurance prices in four years – less than 1% – provides increasing evidence that the soft market is reaching its end, according to Towers Perrin’s most recent commercial lines insurance pricing and profitability trends survey (CLIPS).

Prices for property and directors and officers (D&O) liability actually rose – albeit slightly – in the first quarter of 2009. Prices for large accounts – those with annual premiums in excess of $50,000 – also increased during the first quarter. This upturn in prices is not surprising, as large account prices eroded substantially more than middle-market and small accounts in 2007 and 2008. In contrast, 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.

“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,” said 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 CLIPS survey results and the surveys published by the insurance brokers.

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

Year to date through the first quarter, CLIPS data indicate 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.

About CLIPS

CLIPS data are based on both new and renewal business figures – when available – obtained directly from carriers underwriting the business, and indicate more conservative price reductions than other marketplace surveys. This particular survey compared prices charged on policies underwritten during the first quarter of 2009 to the prices charged for the same coverage during the same quarter in 2008.

CLIPS participants represent a cross section of U.S. property & casualty insurers that include many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S. CLIPS’ measurement of both pricing changes and loss ratio changes also sets it apart from other studies.

Participation in CLIPS has been increasing, as carriers believe it provides a more accurate picture of price changes and find it useful in setting assumptions for estimates of their claim liabilities.

The survey results track the differing trends in pricing across various regions, lines of business, and account sizes on a quarterly basis. Historically, price level and loss ratio change results vary considerably by line of business and market segment.

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia, New Zealand and the Middle East. More information about Towers Perrin is available at www.towersperrin.com.