Willis: CAT Cover Capacity Shrinking

The record 2005 hurricane losses are causing insurers to closely examine their aggregate catastrophe risk and place limits on those exposures, brokers at a Web conference said.

Executives of Willis Group Holdings, speaking at a session put on by their company, said the carriers' actions could mean insureds will be unable to purchase the coverage levels they were able to in the past.

Their observations came during a conference titled "The Accelerated Growth of Aggregation Risk and What You Can Do About It."

Sandy Vietor, executive vice president of Willis North America, moderated the session and was joined by Rod Thaler, executive vice president and national director of Willis Re, and Gordon Prager, director of risk management consulting, Willis Risk Services.

The conference speakers said there is growing demand on insurers from reinsurers and rating agencies to manage their aggregate catastrophe exposures, and this is causing insurers to cut back on their willingness to write these risks.

Mr. Thaler noted that with some big renewals coming April 1, they may discover the capacity they enjoyed in the past is no longer available. That may translate into lower limits for insured risks.

"It is clear that the reinsurance market is getting more challenging each week," he said.

Reinsurers are seeking to work with carriers who are managing their risks well and doing less business with those carriers who are not effective managers of risks, speakers said.

Mr. Vietor said that catastrophe capacity is difficult in the Southeast, with the issue extending into California. For energy risks, he said, pricing is up 15-to-20 percent.

"Renewals are difficult, and it is not all about price. There is the question of capacity," he said. He added that an early hurricane this year would set the tone for the next four months.

For policyholders, some answers to increasing their limits may come by forming a captive, or banding together with others with a similar exposure to form their own mutual insurance company, the brokers said.

However, in one example, even this may not be a complete answer, the executives noted.

OIL Insurance Ltd., an energy mutual insurance company for oil producers, recently reduced its insured limit per incident from $1 billion to $500 million, with the realization that the insurer could not suffer another hit similar to 2005, when it reached limits twice.

A rebroadcast of the discussion is available at www.willis.com/Extras/webcasts.aspx.