Brokers are having to explain lower prices to their commecial clients soon after justifying higher rates, says Andy Cook

I know it seems like turkeys voting for Christmas, but I have been besieged by brokers over the past couple of weeks complaining that liability markets are softening.

There has been speculation about rates softening for months. This is based on the argument that insurers such as Groupama, Allianz Cornhill and Brit (see interview on page 10) are piling into the UK commercial market at the same time as AXA and Norwich Union looking to maintain and improve their own market shares.

Brokers are worried that they will be made to look like fools. After spending a long time explaining the technical arguments for rates moving up sharply in 2002 and 2003 to their clients, brokers are having to explain why rates are moving in the opposite direction.

One broker told me that a risk that rose by 80% in 2003 had been recently requoted at the 2002 price.

Admittedly, this could be a blip due to underwriters trying to fill their first quarter premium figures, but the evidence for softening carrying on into the second quarter looks strong.

Property rates have been softening for a while now and the fleet market is also looking competitive. So the area for underwriters to compete on price - should they want to - would be liability. And with combined ratios for commercial lines hovering below 95% for many, there is some room for manoeuvre.

The capital arguments for rate reduction seem poor - over $200bn has left the insurance market since 11 September and around $50bn has been attracted in. So there is a dramatic worldwide shortfall in capital that should mean buoyant rates. But in our part of the global insurance market, the long-term prospects of short-tail business is attractive.