Except for the 6.4 percent drop in the second quarter of this year, the magnitude of declines has remained less than 6 percent, with a 5.8 percent average commercial rate decrease estimated for third-quarter 2009 marking the second highest level of decline. In intervening quarters, CIAB said rates dropped 5.6 percent for fourth-quarter 2009, then 5.3 percent in first-quarter 2010, with this quarter's 5.2 percent marking the lowest level of decline over the past year.

Another report, issued by insurance broker Marsh, titled “Insureds Net Benefits As Downward Rate Pressures Persist; Marsh U.S. Insurance Market Report 2010, Third Quarter Update,” declared that pricing has remained stable throughout the year.

“In January, on releasing our annual U.S. Insurance Market Report for 2010, Marsh's brokerage specialists and industry analysts advised that insurance pricing and conditions generally would remain stable through 2010. To date, that has been the case, with flat or lower pricing being typical for the majority of insureds in the majority of coverage lines,” the report said.

Marsh said that “vigorous competition” among carriers was the primary reason for that stability.

Examining four different sectors of the insurance marketplace, Marsh said:

o Reinsurance pricing on U.S. property catastrophe experienced decreases in the range of 10-to-15 percent, adjusted for risk, during the July 2010 renewals, noting that rates continued to erode during the first half of the year despite an above-average level of catastrophe losses.

Reinsurance pricing is expected to continue to drift downward, barring “a market-changing event.”

o Property insurance pricing played out in a similar manner, with rates remaining the same or decreasing for the first nine months of the year, despite a high level of catastrophe losses.

Capacity and competition remain high in the segment, and that reality will probably run into 2011, Marsh said, noting that a surplus of capacity “will likely force insurers to decrease pricing to maintain market share” into next year.

o On the casualty insurance side, the markets remain stable for the first nine months of 2010 and are expected to remain so into 2011.

“Primary casualty remains largely a buyer's market,” Marsh said.

o For financial and professional risks, directors and officers rates are “generally low” through the third quarter of 2010 and are expected to stay that way into 2011.

Even financial institutions, which had seen rate hikes during the worst days of the economic downturn, began to see rates stabilize this year.

Abundant capacity, continued profits for insurers and a stable securities class-action environment are keeping the sector on an even keel, Marsh said.

One concern in this area is enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act and how congressional mandates will affect business.

MARKET CHATTER

In a series of interviews at the 97th annual Insurance Leadership Forum of the CIAB held in Colorado Springs, Colo., in early October, brokers and insurance company executives expressed the view that the current soft market could continue for at least another year or two.

“We've met with two dozen insurance companies and they said next year expect more of the same,” commented Warren Mula, who is chair of U.S. Retail for Aon Risk and chief executive officer of Aon Broking.

“Underwriting discipline has not gone out the window. It still remains,” he said, noting that the intensity of competition is focused on “benign risks” and markets where insurance is limited and carriers believe there is opportunity.

“They are all looking at getting into businesses that they are not in today,” said Eric Anderson, CEO of U.S. Retail for Aon Risk Solutions.

“The competition is not showing any sign of slowing down,” observed David L. Eslick, president and chief executive officer of Marsh & McLennan Agencies.

“It will definitely remain soft through next year,” said H. Wade Reece, chairman and CEO of BB&T Insurance Services Inc. The trend, he added, points to some stabilization that the market is seeing now.

WAITING FOR THE BIG ONE

The feeling too is that only an extraordinary event could have enough impact to turn the market around, said brokers. Depending upon whom one spoke to, the loss estimate for such an event ran from as low as $60 billion to as high as $120 billion before market turning impact would be felt.

“Without a big loss I can't see it changing,” said Alastair Swift, chief placement officer for Willis North America Inc.

“People do not understand what number is truly needed to dislodge the market,” said Carl Beardmore, group CEO for BMS Group based in London.

One reason for the continued soft market is the availability of capital. There continues to be much of it out there ready to be deployed, say observers, and that, in part, is fueling the competition and keeping markets depressed.

Mr. Swift said a lot of capacity came into the marketplace in the last few years in the expectation that some insurers such as American International Group and XL Insurance Services “would go by the wayside” and that would open up some opportunities. When that failed to happen, insurers were forced to find other places to deploy their capital. The result is the current market condition, he suggested.

Much of that deployment is going into niche specialty businesses, brokers noted.

“Everyone is specializing more and more. We are seeing more of that, and we are building around that,” said Aon's Mr. Mula. “Clients want specialization, and that produces better underwriting results. We believe that is a win-win all the way around.”

There is some question, however, as to how long insurers can continue to keep pricing down when their bottom lines start to suffer.

“Overall, the insurers are in their cheating phase,” Willis' Mr. Swift said. “If you look at a lot of underwriters' results, they are not that great, but they are not being helped by the economy.”

He noted some changes in market conditions are taking place in isolated areas–such as California's workers' compensation market, for instance–but that just seems to be fueling competition once it happens.

BB&T's Mr. Reece said the recession has played a role in keeping a hard market at bay. The dramatic changes in the U.S. economic system from a manufacturing and agriculture-based economy to a service economy may translate into fewer losses for insurers. That, in turn, could mean less impact on underwriters.

“The future may see more [individual] industry-based market changes,” rather than market changes across all sectors of the economy, he suggested.

NORMAL OR UNSUSTAINABLE?

For brokers, the future involves dealing with a soft market situation for a long time to come.

“You can't build your business around a hard market. You have to build it around the market you have,” Mr. Swift said.

The market that we are in now is the one you have to learn to operate within, Mr. Reece agreed. “You have to operate in the market that is given us, and most of the time it is soft.”

BMS' Mr. Beardmore noted that this may be the “new normal” taking shape, with cycles becoming less dramatic and earnings decreasing as firms learn “to make money at the current level.”

“This can only benefit us when the market turns,” he said.

During a recent third-quarter results earnings conference call, J. Powell Brown, president and CEO of insurance broker Brown & Brown, said, “The market continues to be very competitive.”

He described a marketplace where most risks are priced in a range starting at flat and extending downward all the way to decreases of 10 percent. Only a very few lines of business, such as employee benefits in some sections of the country, showed any sign of increase, he said.

J. Patrick Gallagher Jr., chairman, president and CEO of Arthur J. Gallagher Co., echoed the same sentiments during a conference call with the investment community. Mr. Gallagher said rates are where they were at pre-2000 levels and indicated that he did not believe such prices are sustainable.

“I don't know when [the market] is going to change, but I'm sure it will,” Mr. Gallagher said.

Similarly, Kansas City-based Lockton, in its “Fall Market Update” released late last month, asserted that “insurance market consensus is that the current pricing situation is unsustainable in the long term, but hardening of insurance prices will only be seen when insurers and reinsurers start to significantly eat into capital.”

Right now, “buyers continue to have the advantage in a property and casualty market that remains soft,” the update said. “The rate of pricing decline has slowed, but in most cases, buyers can expect a favorable pricing environment will continue for the immediate future.”

“The first half of 2010 saw net written premiums [for p&c carriers] flatten out after nearly four years of decline,” and underwriting losses continued to be at the same minimal level as last year. Reserve releases added to carrier profitability, and industry surplus rebounded to pre-recession highs, the report noted.

Still, while the representatives of the firm analyzed specific segments of the market and reported similar indications of underwriting profitability and balance sheet strength, they also gave some indications of factors that they believe might disrupt the current buyers' market.

o In the U.S. commercial property sector, “rates have been in a freefall for much of 2010 as abundant capacity and the lack of any significant catastrophe losses in North America in the second and third quarters have encouraged aggressive competition,” the Lockton report said.

This freefall, however, “can only go on so long, and we believe that insurers will attempt to pull the ripcord in 2011 in an effort to slow the decline in prices.”

Lockton advised buyers to pay special attention to the 2011 first-quarter results of property insurance. “As the market may increasingly resist the freefall in rates, keep in mind that it only takes one major catastrophe to trigger a sudden and extreme change in risk appetites and underwriting capacity worldwide,” the report said.

o In the international casualty market, “there is scant sign yet of firming pricing,” Lockton experts said, adding that “with interest rates remaining resolutely low, there is some suggestion that insurers may be leaning a little heavily on releases of past-year reserves to shore up their results.”

“How sustainable this approach will prove to be longer term is very much open to question,” Lockton concluded.

o Reinsurance markets continue to be “at a crossroads” in the pricing cycle.

The direct market remains soft, eroding the rating base for reinsurers, the report said. “At the same time, there is no contraction in terms of reinsurance supply.”

Lockton reported that some reinsurers, however, are already reporting negative results for the first half of the year. “Their books are only being balanced by loss reserve releases and realized investment gains,” the report said.

(Additional reporting by Arthur D. Postal)