The soft commercial insurance market may be hardening, new data suggests.

Commercial insurance prices declined 3% in the fourth quarter of last year, the smallest reduction in the past two years, according to Towers Perrin’s most recent commercial lines insurance pricing and profitability trends survey (CLIPS).

Product lines and market segments experiencing the biggest declines over the past two years – workers’ compensation, property and large accounts – appear to be “stabilizing,” the survey found.

Researchers say the pricing reductions in these three areas are “generally in line” with activity in other commercial lines, with the exception of specialty lines, where, consistent with recent quarters, price changes remained fairly flat, according to the survey.

CLIPS data also shows that accident-year 2007 loss ratios deteriorated 7%, compared to the prior year, and that accident-year 2008 loss ratios rose an additional 12% over 2007. The deterioration is a continuation of a five-year trend as overall prices have eased by 11% since 2004, despite ongoing increases in loss inflation.

“The underlying deterioration in underwriting results, coupled with unprecedented investment losses, are contributing to a slowing of pricing declines,” said Jeanne Hollister, Towers Perrin managing principal and property-casualty insurance practice leader for the Americas region. “Although the property-casualty industry remains strongly capitalized in the aggregate, we expect that the surplus declines in 2008 will result in increased conservatism in companies’ risk appetite. We believe that this, in turn, will lead to a gradual, general firming of prices throughout the balance of 2009,” she added.

CLIPS data are based on both new and renewal business figures – when available – obtained directly from carriers underwriting the business, and indicate more conservative price reductions than other marketplace surveys. CLIPS participants represent a cross section of U.S. property-casualty insurers that include many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S. CLIPS’ measurement of both pricing changes and loss ratio changes also sets it apart from other studies.