Insurance Industry Executives Say 2009 Will Bring Changes

The property-casualty insurance industry is in better shape than other financial institutions, but 2009 will likely be marked by changes in both rates and regulation, industry executives said.

Five executives from the insurance brokerage subsidiaries of New York-based services firm Marsh & McLennan Companies and the president of the Insurance Information Institute discussed the state of the insurance marketplace and the direction it may be going in 2009.

In a Web seminar sponsored by Marsh, titled "Global Insurance Markets in 2009," the executives pointed to evidence of rate increases across all lines of business, while I.I.I. President Robert Hartwig noted that while the industry comes into 2009 in better shape than others, federal regulatory oversight may be unavoidable.

Reinsurance, which is usually the lead indicator of the direction rates will take, is seeing some upward pressures, especially on certain property risks, while casualty is currently seeing flat levels or rate increases of 5 percent, said Christopher Klein, from Guy Carpenter.

The market is reacting this way despite the fact the reinsurance industry has seen capital deterioration of 15-to-17 percent, according to Guy Carpenter calculations.

"That is painful, but not mortal," Mr. Klein said, noting that a significant portion of that depreciation was due to share buy-backs and dividend payments.

The industry, he continued, is in fine shape compared to banks that have lost more than 30 percent of their capitalization.

Generally, rating agencies have been "muted" in their reaction, because the reinsurers' capitalization has remained strong. However, there are some indications that could change, or corrections could be in the offering.

Robert Howe, with Marsh's Global Property Practice, called the market "firming," while George Parks, Marsh's Casualty Practice, said rates are flat to slightly up.

Competition remains a driving force behind rates, executives noted, because capacity still remains abundant in a number of areas.

Mr. Hartwig opened the Web seminar discussion by noting that the insurance industry entered 2009 in better shape than other financial services companies but still suffered declines in revenues. He attributed this to a combination of investment losses, the soft market keeping underwriting rates low, and loss in premium volume because of the economic crisis as clients reduced their risks.

The insurance industry, he said, remains well capitalized, and the ability to pay claims and transfer risks remains unimpeded.

He said the insurance industry is in for some major changes as he believes the federal government will seek to take more regulatory control of the industry over state regulation.

"We are in the waning days of that exclusivity, but we just don't know what form it is going to take," said Mr. Hartwig.

A re-broadcast of the Web seminar is available at www.marsh.com.