Property/Casualty Marketplace to Remain Soft in 2008, Watson Wyatt Worldwide Says

WASHINGTON, November 15, 2007 – The market for property and casualty
insurance will stay soft in 2008, as premiums are expected to either
decline or remain flat, according to actuarial and risk management experts
at Watson Wyatt Worldwide, a leading global consulting firm. Additionally,
insured companies may see enhancements in some coverage, particularly for
directors’ and officers’ liability insurance, and can expect this trend to
continue.

“Rate decreases will be the rule for casualty insurance coverage next
year,” said Orin Linden, property and casualty practice leader of Watson
Wyatt’s insurance and financial services consulting group in New York.
“Strong competition and healthy capacity are forcing insurance companies to
lower their premiums or, at the very least, hold them stable. It’s clearly
a buyer’s market.”

Rates for casualty insurance coverage may decline as much as 5 percent to
10 percent next year, and rates for property insurance coverage will be
mostly flat, although some buyers may see a slight reduction. Rates have
declined in each of the last few years for both property and casualty
insurance coverage as the industry is going through a period of strong
profitability, said Linden.

Other segments in the insurance industry — including workers’ compensation,
directors’ and officers’ liability, and reinsurance — are also expected to
experience soft market conditions, according to Steve Lawrence, a property
and casualty senior consultant with Watson Wyatt.

Rates for workers’ compensation will be relatively stable as the market
remains soft and companies continue to experience strong profitability. “We
are expecting to see rates remain unchanged or perhaps decline as much as
five percent,” said Lawrence.

Lawrence also noted a growing interest among insurers and risk managers in
using predictive modeling software. In particular, insurers are applying
the techniques they use for personal auto to workers’ compensation. This
helps risk managers identify potential problems with workers’ compensation
claims earlier in the process and allows them to implement a settlement
strategy to reduce their cost. “Large companies with high volumes of
workers’ compensation claims are especially drawn to predictive modeling,”
said Lawrence.

“With the marketplace showing little sign of hardening, it may be an ideal
time for buyers to review their risk management program structure and
insurance policies,” Linden said. “This will help them decide if key
program parameters should remain intact or if alternative risk management
solutions, such as insurance captives, should be considered.”

“Buyers clearly get better terms in softening markets. However, they need
to be well-positioned so that when the market firms up, they have a plan to
move forward.”

Linden and Lawrence also suggested that buyers who are considering
switching carriers should analyze the carrier’s long-term credit rating,
since many claims may not be paid out for another six to 10 years.

About Watson Wyatt Worldwide

Watson Wyatt (NYSE: WW) is the trusted business partner to the world’s
leading organizations on people and financial issues. The firm’s global
services include: managing the cost and effectiveness of employee benefit
programs; developing attraction, retention and reward strategies; advising
pension plan sponsors and other institutions on optimal investment
strategies; providing strategic and financial advice to insurance and
financial services companies; and delivering related technology,
outsourcing and data services. Watson Wyatt has 7,000 associates in 31
countries and is located on the Web at www.watsonwyatt.com.

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