While the commercial lines insurance market has been pummeled by the combined impact of depressed rates and declining written premiums resulting from the global recession, insurers will nonetheless post a profit for 2009 and capacity remains abundant. According to the report, "The Insurance Market in 2010: The Lingering Impact of the Recession on Capacity and Pricing," sponsored by FM Global.

The report found that capacity for insurance is abundant in most lines, but demand for that capacity has been diminished by the ravages of the recession.

"Decreased demand as a result of the damaged economy will keep rates from rising in 2010," Mr. Bradford said in a statement. In addition, he said, premium volume "for lines of business that are based on factors such as payroll and revenues will continue to be suppressed by the lingering impact of the recession. It is going to be a challenging year for insurers and, especially, brokers."

As premium volume falls, insurers seeking to deploy their excess capacity are considering new avenues for growth. "The continuing soft market further encourages insurers to introduce new products and move into new markets," Mr. Bradford said.

"New products and markets can provide new revenue streams, but they can also cause erratic insurer results," he noted.

With several exceptions, property & casualty insurers were largely unscathed by investment losses directly attributable to the meltdown of the subprime mortgage market in 2007, the report found.

Economists generally agree that the recession has ended, but recovery will be slow. Unemployment hovers at about 10 percent, and business bankruptcies are well above long-term averages. As a result, the commercial lines insurance industry has seen revenue fall with little hope of a material rebound in 2010, said the report.

Additionally, the soft phase of the insurance pricing cycle shows few signs of loosening its grip. The average commercial lines premium fell about 2 percent in 2009, and likely will fall by a similar amount in 2010, Advisen found.

Brokerage firms, which derive most of their revenue from commissions on insurance premiums, have been especially challenged by declining written premium. Organic growth turned negative during the first three quarters of 2009, though profitability remained relatively stable for the largest firms, the firm said.

According to the report, the most likely scenario for 2010 is continued soft market conditions. The recession will suppress demand for insurance capacity and as a result, the market will remain comparatively overcapitalized. Some policyholders will see modest rate increases, but on average rate levels will erode slightly in most lines.

But while commercial lines insurance buyers can plan on a competitive insurance market for 2010, the seeds of the next hard market have been sown, and above-average catastrophe losses could contribute to a reversal of the market cycle, the report said.

The inevitable hard market may begin to emerge as early as 2011. In the absence of large catastrophe losses, the sudden and severe premium hikes that characterized the 2001-2003 hard market are unlikely to be repeated. Rather, rates will rise slowly and erratically, Advisen forecasted.

How high rates rise, and how long the hard market persists, will depend in part on how much new capital is attracted to the market, the report said. Insurers already have successfully raised funds in the depths of the soft market, suggesting that abundant capital is waiting in the wings, the report said.

The wild card in the market cycle, as always, is catastrophe losses, Advisen noted. One mega-catastrophe, such as another Hurricane Katrina, or an accumulation of smaller catastrophes could soak up excess capacity and contribute to a turn of the market in all lines of business, the study said.

So far, 2010 is shaping up as an active and expensive year for natural catastrophes. Nonetheless, it would take an exceptional level of catastrophe losses to trigger the type of sudden and sharp market rebound that was seen in 2001-2003, according to the report.

The study is free online at http://corner.advisen.com/reports_topical_planning_2010_home.html .