Aon ?03 U.S. Commercial Premiums Down 10%

By Caroline McDonald

NU Online News Service, April 20, 3:32 p.m. EDT, San Diego?U.S. property insurance buyers on average have seen premiums drop 10 percent as a result of insurers' improved investment returns, increased market capacity and fewer 2003 catastrophic losses, according to an informal survey released here by Aon.[@@]

Although the market for property insurance has stabilized, Aon executives advised insurers to "stay ahead of the wave."

Nick Maher, chairman of Aon Global Property Practice Group, said: "The wave has crested, rates are down, deductibles are down, and competition has increased." He added that this is "not the time for complacency."

Gary Marchitello, managing director of Aon's National Property Practice Group in the United States, said a "15 percent reduction of property rates in 2003 is good news," especially since average increases in 2002 were 42 percent.

He noted that capacity is back to $2.5-to-$3 billion, which has driven rates down. Clients had become comfortable with their insurance limits, he said.

Mr. Marchitello noted that currently there is a lot more capacity than in prior years. "After 2001 we saw limits shrink," he noted.

Pre-Sept. 11, 2001 capacity was $3 billion. That number shrank to $500 million after 9/11. Now capacity is back to pre-9/11 numbers. He said that even though capacity is back, limits are not as "robust" as they were previously and deductibles are coming down, though not dramatically.

Aon's 2004 US Property Report and survey also found that buyers, in contrast to last year's survey, are increasingly concerned about the impact of terrorism and the uncertainty surrounding the anticipated expiration of the US Government's Terrorism Risk Insurance Act.

The survey found that while the insurance market has begun to repair balance sheets and underreserving of previous years, competition among insurers continues to grow as they battle for market share--which in turn has driven rates down further.

An informal survey of both buyers and sellers within the 2004 US Property Report found that insurance buyers view use of captives and self insurance as the most significant change to their risk financing strategies in recent years and anticipate a period of uncertainty while US carriers decide whether to continue offering terrorism cover.

Sellers, on the other hand, found it difficult to maintain market share in the face of growing competition and saw the U.S. and Bermuda markets as most dominant for U.S. property insurance.

Mr. Maher said pricing the trend is expected to continue unless the market experiences "a rapid upturn in either man-made or natural catastrophes, which in 2003 were at a remarkably low level."

Mr. Marchitello added that buyers of property insurance "tend to be the first to reap the benefits of the insurance market cycle." He said the recent downturn has enabled buyers "to reduce costs without having to significantly increase retentions."

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Aon ?03 U.S. Commercial Premiums Down 10%

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