Insurance market prices may be dropping, but the movement that is underway is one of market correction, not an out of control plummet in rates, according to a wholesale insurance broker's analysis.
Edison, N.J.-based NAPCO, in its 2007 "Property Insurance Insights" report, said that in its view the current downward market trends are "a move toward reality-based pricing."
"We think it would be unwise to view end-of-year aggressiveness as the beginning of a property insurance freefall," the report said. "Instead, we believe that we are in the midst of a necessary correction to the market's overreaction to KRW [Hurricanes Katrina, Rita and Wilma in 2005], and we are witnessing the efforts of insurers and reinsurers to find the balance between underwriting discipline and returning shareholder value."
The report said the softening in this sector should continue through the first half of this year.
In catastrophe-prone property areas, rates are down as much as 40 percent, and "we would not be surprised if they were another 15 percent to 25 percent lower in 2008," said NAPCO.
However, insureds are still paying more for property insurance than prior to Katrina, and the ongoing competition will not drive prices down below pre-Katrina, which underwriters deemed inadequate, according to the report.
"Even as carriers are pressured to grow, we suspect that property catastrophe underwriters will maintain a reasonable level of underwriting discipline," the NAPCO study said.
Sophisticated modeling and rating agency requirements coupled with doubts about investment performance all conspire against underwriters abandoning underwriting discipline on catastrophe property accounts, NAPCO said.
"The days of easy, cheap–and some might say na?ve–catastrophe capacity appears to be a thing of the past," said the report.
The report is available online at http://napcollc.com/articles/NAPCOInsuranceInsights-TheStateOfTheMarket-2008-Jan.pdf.
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