NU Online News Service, May 3, 3:15 p.m. EDT
Insurance rates are showing signs of stability despite the catastrophe losses earlier this year, but catastrophe-exposed risks in North America will probably see increases in the mid-single-percent range, according to a report from Willis Group Holdings.
In its 2011 Spring Market Update report, Willis notes that the impact from the earthquake in Japan, as devastating as it was, has had a limited effect on the insurance market because insurance penetration was not that deep. However, a devastating hurricane event in the United States could have a significant impact on insurers because the insurance penetration is deeper.
While catastrophes earlier this year had people thinking a market hardening was on its way, the reality has proven very different, says Todd Jones, president of Willis North America.
"The property market is shifting, especially for catastrophe risks," he writes in the report. "The overall marketplace appears to be stable, and while softening may slow, no major reversals so far are detected. This speaks volumes about the resiliency of our industry."
Jones warns that if the predicted active hurricane season leads to significant losses, it "could well put us over the tipping point."
The 22-page report reviews more than a dozen lines of business with a prediction of market-rate direction.
Catastrophe-exposed property risks are expected to be flat to a 5 percent increase in the United States, while non-catastrophe-exposed property risks could experience decreases ranging from 5-10 percent.
On the casualty side, risks with minimal exposure could see rates that are flat to down 5 percent. On the other hand, risks with increased loss exposure may see rates remain flat to increase by 5 percent.
Directors and officers insurance is expected to remain on the down side, by as much as 15 percent. Covered entities will see coverage enhancements in their policies, among them removal of pollution exclusions, sharp curtailment of the insured-vs.-insured exclusion and personal-liberty protection costs.
Political risk is expected to be flat to down 15 percent. Underwriting of the risk is based on the nation and the perception of risk there. There will be increased attention paid to due diligence and increased focus on structure and security. Risk sharing is also expected to increase between underwriters and insured, the report says, as carriers will prefer indemnity levels of 60 to 75 percent.
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