NU Online News Service, April 16, 1:18 p.m. EDT

Catastrophe risks can expect to see double digit insurance premium increases through the rest of this year as underwriting capacity dwindles and the hurricane season approaches, an executive from Marsh said.

After years of the competitive soft pricing market cycle, insurers will be seeking increases on heavy catastrophe exposed risks that could go higher than 15 percent said Duncan Ellis, leader of Marsh's U.S. property practice.

Mr. Ellis said key factors for rates are the insured's loss history, exposure, modeling and discounts previously received during the soft market,

"Those that received the biggest soft market discount will see the largest increase," said Mr. Ellis, adding that the increases could range from 10 to 15 percent or higher.

His comments came during the insurance broker's monthly New Reality of Risk online seminar during a session titled "Natural Disaster Risk Management--Current issues for Hurricane, Flood and Earthquake Perils."

Mr. Ellis said the overall property-casualty catastrophe market is going through "dramatic transition" as prices are on the rise and capacity in reduced.

Other factors affecting property cat pricing are increased reinsurance costs, lack of capital market support, rating agency scrutiny and changes in catastrophe modeling that are affecting capacity availability, he explained.

Earlier this year, capacity was available but "for some there was a struggle to achieve capacity at what would be considered an economic price" which was a price acceptable to both buyer and insurer, said Mr. Ellis.

Generally, catastrophe renewals in the first quarter of 2009 came in at flat to up 10 percent. The second quarter is expected to be higher because of diminished capacity and the onset of the hurricane season, he said.

To combat these issues, Marsh, a subsidiary of New York-based Marsh and McLennan Companies, is marketing accounts to a wide array of players as it seeks layers to cover the risk, explained Mr. Ellis. One strategy to control pricing is to work with the lower layer insurers, which he indicated could reduce the overall cost of the insurance placements.

For non-catastrophe property risks the market will remain extremely competitive, he noted, because insurers want these risks to balance out their portfolios.

Catastrophe modeling remains the key driver for the p-c marketplace, Mr. Ellis said, with rating agencies relying on them heavily for their analysis.

Insurers, he explained, are trying to "get pricing back in line with modeling" and some insurers are pursuing price increases regardless of changes made to the models because of the soft market pressures on their earnings. He added that the models, which will incorporate lessons learned from last year's Hurricane Ike, may not differ that dramatically from the current ones.

The seminar session can be accessed online at www.marsh.com.

Special Reports /

Marsh: Expect Double Digit Increases On '09 Cat Risks

Related Stories

Recommended For You