A recent survey of commercial insurers indicates rates are beginning to harden, but brokers speaking at the Reinsurance Rendezvous in Monte Carlo paint a picture of an uncertain market, particularly for reinsurers, and of executives searching for direction on how to be profitable.
According to Towers Watson's recent "Commercial Lines Insurance Pricing Survey," commercial-insurance prices increased by almost 1.5 percent in the 2011 second quarter after the first quarter remained flat, relative to the same time period a year ago.
Towers Watson says its survey results, which used data by 38 insurers representing about 20 percent of the U.S. commercial-insurance market, is consistent with a CFO survey it will be releasing soon, in which 75 percent of respondents say standard property-market prices were at the bottom or turning upward.
Workers' compensation and commercial property show the most significant price increases in the quarter, Towers Watson says. For workers' comp, it is the second-consecutive quarter in which rates have increased, while commercial-property prices increased for the first time in five quarters. Towers Watson notes commercial-property rates are likely influenced by catastrophes early in the season.
A notable exception to the price-increase trend was directors and officers liability, Towers Watson says, which continued to show "significant declines in price levels."
However, Alex Moczarski, president and CEO of Guy Carpenter, the reinsurance brokerage subsidiary of Marsh & McLennan Cos., calls both the insurance and reinsurance industries "adrift and directionless" due to uncertainty involving the world's economy, the possibility of inflation and diminished reserve releases.
"Every CEO in the industry is asking the same question: How do we achieve growth in this directionless market?" Moczarski says. "The current climate is uncertain at best, but we believe that growth opportunities exist—or can be created by those with access to the right insight, tools and transactional capabilities."
For the reinsurance market, Guy Carpenter released its 2011 World Catastrophe Reinsurance Market Report, which notes there is no widespread hardening in the broad reinsurance market for non-catastrophe lines, which remained flat to down. Property catastrophe, on the other hand, was flat to up 10 percent.
Speaking at a PricewaterhouseCoopers event in Monte Carlo, Martin Sullivan, deputy chairman of Willis Group and CEO of Willis Global Solutions, says he believes a broad-based market hardening is no longer likely. Instead, he believes that, absent a significant natural catastrophe, a hard market is unlikely.
"I am not so convinced that the historic market-cycle movements will be repeated again—in fact, I suspect that the 'market-cycle' has actually broken down into a number of subcycles," Sullivan says.
"But barring [a] financial Armageddon," Sullivan continues, "the current levels of overcapitalization may be reduced by losses or poor investment returns—but that should not return us to the bouts of capital starvation that drove market behaviour in some of the earlier hard markets."
He adds "more sustainable competitive advantages need to be developed through operational excellence and reduction in costs, particularly the cost for reinsurers to access the risks they would like to write."
In its 50-page report, "Reinsurance Market Outlook—Value Creating Capital," Aon Benfield says "reinsurers remain well capitalized and have the ability to continue to provide value-creating capital to insurers at terms that are accretive to the earnings and capital of insurers."
The reinsurance broker, a member of Chicago-based insurance broker Aon Corp., says that "assuming only modest additional insured-catastrophe events" for the remainder of this year, there is sufficient capital to "meet the demands of insurers globally."
Aon Benfield says both insurance and reinsurance carriers are expected to end 2011 "with more capital than they held at year-end 2010. Insurers are expected to show a meaningful level of growth over reinsurers."
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