NU Online News Service, July 11, 12:42 p.m. EDT
With the onset of the hurricane season, the insurance industry is exhibiting signs of reaching its soft-market bottom as capacity is beginning to be reined in and some lines of business are seeing price increases, according to a report from insurance broker Marsh.
In its Second Quarter 2011 Insurance Market Update, Marsh says the global catastrophes in New Zealand, Australia and Japan have "depleted insurers' 2011 catastrophe claims reserves" before the beginning of the June 1 hurricane season.
Despite this, the markets remain "well capitalized and generally competitive."
However, some insurers are responding to events by withdrawing from catastrophe-affected regions and loss-making sectors of business.
Those clients that have had losses or have significant catastrophe exposure "are experiencing tougher market conditions," Marsh says. Accounts with no losses or a slight amount of catastrophe exposure are finding it more difficult to find reductions in property-renewal rates.
Insurers are seeking increased retention levels and are "reviewing other policy terms and conditions."
Marsh says that overall there has not been a change in market pricing and fundamentals. However, the report notes that "expectations of an active U.S. hurricane season, combined with greater insurer discipline, increase the potential for a changing market dynamic through the balance of 2011."
In a statement, Nick Bacon, chief executive officer of Bowring Marsh, the firm's specialist international placement broker for property and casualty risks, says the "global insurance market remains under pressure" and many insurers and reinsurers have seen their 2011 budgets for catastrophe losses "substantially eroded, if not exceeded" prior to the start of the hurricane season.
For global property risks, Marsh says rates "varied widely" depending on losses. Programs with 25 percent of the total insured value in catastrophe exposures were likely to see increases of up to 15 percent in premium rates at renewal, says Marsh.
Japan earthquake risks experienced increases as high as 50 percent while earthquake rates in New Zealand rose to as much as 30 percent.
Wind-exposed risks in the United States and the Caribbean could see rate increases as high as 15 percent.
Elsewhere, renewal rates were "competitive" or saw small increases for accounts that did not have "significant catastrophe exposure."
Marsh predicts that a benign wind season "is unlikely to lead to a return to market-wide reductions, but rather to a continuance of erratic market behavior through year-end."
On the global casualty side, Marsh says the market has begun to see "small increases in rates for many lines of business."
Energy and marine risks with pipeline exposures saw increases up to 40 percent, while Gulf of Mexico exposures experienced increases up to 25 percent.
The U.S. casualty market is described as "stable to slightly soft," with rate reductions moderating.
Concerning the U.S. directors and officers marketplace, rates remain soft, but the report warns that new government regulations could have an impact in the future.
Dean Klisura, U.S. risk practices leader for Marsh, advised buyers that "with rate reductions less common in certain product lines, it is important that organizations increase their engagement with underwriters to differentiate their risk profiles."
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