After a couple of years of dramatic decreases in premium pricing in the insurance market, the industry may be reaching a point of stabilization, according to a broker with Marsh.
During a conference call today, sponsored by New York-based Marsh & McLennan Companies, the parent of insurance broker Marsh and reinsurance broker Guy Carpenter, Robert F. Howe, global leader of Marsh Property operations said that after a "couple years of dramatic decreases" there are signs of stabilization in pricing in commercial insurance.
He said premiums are reaching their "technical rating," that he explained is the point at which underwriters feel they cannot go below their base line on a risk. Some underwriters are beginning to pull away from risks where they feel the pricing is no longer adequate, he said.
Plenty of capacity remains in the marketplace, he noted, which is fueling the dramatic decreases clients are experiencing.
"The last 18 months have actually been a great time for buyers," he said.
In Marsh's client world, 72 percent have had rate decreases in excess of 5 percent and the medium rate reduction has hovered between 11 and 12 percent.
He noted that clients who experienced the steepest price increases in the wake of Hurricane Katrina are benefiting the most in reductions today.
However, there are signs that the rate reductions can not continue. Globally, in the first quarter of this year, there were 15 individual losses of more than $100 million that were considered non-catastrophe events. There were seven losses in excess of $350 million from events connected with explosions, fire and flooding.
"After 18 months of rate decline … some underwriters will say this is enough," suggested Mr. Howe.
"The forecast is that there is still some good sailing ahead for our clients, but we are being cautious because there is a lot that could happen."
Reinsurance capacity remains robust, noted Kevin Stokes, leader of Guy Carpenter's Global Property Specialty Practice. Catastrophe rates continue to drop with meaningful reductions between 15 to more than 20 percent. The same rate of reduction in the past is expected to occur with this July's renewals, he said.
No major catastrophe losses this year could spell continued increases in capacity, possibly fueling further reductions in the future, he noted.
"We believe the game really starts in 2009," Mr. Stokes said.
He added that an analysis indicates that reinsurers have been able to withstand reductions in rate for about a four-year period before putting a halt to reductions.
Improvements in modeling and pressure from rating agencies to keep adequate capital could affect that time line, but in his final analysis he said, "We have to see how many successive years they go" after a five year period.
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