Commercial Insurance Market 'In the Doldrums'

For commercial insurers like American International Group, Chubb and Travelers the year 2010 looks like "same old, same old" in comparison with 2009 and the latter part of 2008. In 2010, sales will be "in the doldrums," warns MarketScout, the Dallas-based electronic insurance exchange.
Not only did commercial property/casualty rates drop 4 percent year over year in January, says MarketScout CEO Richard Kerr, but sectors such as public authorities and municipalities as well as energy, were down 5 percent. That's disappointing, because energy seemed to hold up relatively well during the recession, and public works should have been stimulated by President Obama's rescue package.

Companies are also paying less for directors and officers coverage, despite the threat of lawsuits against executives who overpromised on earnings prior to the recession and then watched as the bottom dropped out. After several months without any decreases, those rates were down 2 percent last month.

The continued decline in commercial insurance rates is no surprise to those watching fourth quarter earnings. Traveler's business insurance premiums dropped 9 percent from the previous quarter even though the insurer reported overall good earnings. Chubb's business insurance premiums fell 6 percent year over year. And AIG, which owns commercial insurer Lexington Group, has yet to report. AIG could get hit the hardest and that wouldn't be good, given its already tenuous position and the ongoing bad publicity.

"We are in the market doldrums and will be here until something changes," Kerr told Business Insurance. "Insurers must be patient."

If insurers have the resources to do it, the smartest move is to ride out the recession, he says. Clearly Chubb and Travelers, which reported decent earnings in spite of declining premiums, can.