NU Online News Service, Sept. 25, 3:13 p.m. EDT
Low pricing conditions are expected to continue into next year as more capital begins flowing back into the insurance market and the economy improves, Guy Carpenter’s chief economist said.
There is currently a resurgence in the sale of catastrophe bonds as the world’s credit crunch has begun to ease and markets open up, explained Sean Mooney of Guy Carpenter reinsurance brokerage.
The issuance of such bonds, which are used by companies to cover a specific risk, have “gone way up” to $3 billion, and while not a record, “it provides clear evidence of a more competitive market for risk transfer out there,” he said.
His remarks came as part of a panel discussion on the commercial insurance marketplace sponsored by Guy Carpenter’s sister company, Marsh insurance brokerage, both of which are subsidiaries of the New York-based services firm Marsh & McLennan Companies.
This increase in capital will mean the continuation of the soft market, said Mr. Mooney, with renewals about flat.
“The more supply of capital means softer market positions,” Mr. Mooney observed.
In order to create growth on the property side, there may be an increase in acquisition among insurers, he remarked.
While on the casualty side, Mr. Mooney said, the concern is that inflation worries could spell significant problems for insurers in five to six years. He added that the inflation spiral, if it becomes a reality, could produce inadequate reserves for insurers over the long term.
Looking more deeply at the property business, Duncan Ellis of Marsh’s Global Property Practice said that despite talk about a hardening market, rates for the first half of 2009 remained stable.
A Marsh survey of 1,000 U.S. clients on their renewals showed that half experienced price increase or decrease in the range of 5 percent. For the first nine months of this year, the median range was flat. The average change was minus 2 percent.
However, risks with significant catastrophe exposure, either wind or earthquake, experienced increases of up to 8 percent in July, and some individual risks the renewals went as high as 15 percent. Those risks with no or little catastrophe exposure saw their rates decrease 3 percent.
For the future, Mr. Ellis said for the vast majority of accounts would remain in a stable range of plus or minus 10 percent, barring a major catastrophic loss. He cautioned that individual risks could see significant increases based on their exposure and loss history.
However, if there is a costly catastrophic event, Mr. Ellis noted that the market could turn around with significant increases in that marketplace. The increases would be seen later in the renewal cycle post event, he said.
The Web seminar titled “A Strategic Overview of the Commercial Insurance Market for 2010 Budgeting” can be viewed at www.marsh.com.