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“We anticipated that the
market would turn in the
third and fourth quarters of
this year. Many insurance
The composite rate across P&C lines fell six percent in July, the same as in the previous months,
brokers expected tighter terms says richard Kerr, chief executive officer of MarketScout. Consistent weak performance has
and increased pricing after
caused the company to revise earlier expectations.
the July 1 treaty renewals.
“We anticipated that the market would turn in the third and fourth quarters of this year. Many
insurance brokers expected tighter terms and increased pricing after the July 1 treaty renewals.
Generally speaking, it didn’t generally speaking, it didn’t happen. July 1 renewals were a bit tougher for property cat risks,
happen. July 1 renewals were
but most reinsurance treaties were placed without much trouble. We are still in a prolonged soft
market,” says Kerr. “It is clear now that it is going to take longer than that, and we now expect it to
a bit tougher for property cat turn possibly in the first quarter of 2010.”
risks, but most reinsurance he adds: “On an aggregate basis for the month of July, the composite rate is down six percent.
treaties were placed without
There are areas of tightening, such as directors’ and officers’ (d&O) liability insurance. however,
for all property cat, including admitted and non-admitted carriers, rates are down. We expect that
much trouble. We are still in a trend to slowly turn.”
prolonged soft market.” The market barometer data is compiled by the dallas, Texas-based electronic insurance exchange
and carried out in collaboration with The national Alliance for Insurance Education and research,
which conducts in-person surveys with 50 ‘A’ rated carriers, but does not differentiate between
surplus line and admitted carriers, mainly because the line has become so blurred.
“The problem that you have is that there are many large admitted carriers that have delved deep
into the surplus lines sector and have recategorised the classification for it to be acceptable for their
book of business, which traditionally used to go to the surplus lines market. now it’s being done by
large admitted carriers.”
Critics have blamed the bailout of ailing insurers such as American International group and
others in the US for depressing the expected price rises.
“What we have observed is that there are surplus lines insurers that are holding the line and
deciding to try and raise prices, or not play at all,” says Kerr. “The numbers are not looking too good
for 2009. There is a tremendous amount of capacity. For some of these large admitted carriers, it
is going to take a while for them to start recognising the losses, but it will come and the market will
eventually turn. Of course, if the wind doesn’t blow this year, then that will also not help, but the
market will turn—it’s just going to take a little bit longer than expected.”
Kerr says the decision of several major surplus lines insurers to “wait it out” until the admitted
market exits what is traditionally considered to be the surplus lines market could prove to be wise if
the market starts to turn and the larger admitted insurers begin restricting their appetite. however,
many surplus lines companies could lose significant market share, which will be difficult to replace
if admitted carriers have judged the market right.
Most state insurance regulators require agents and brokers to use an admitted insurer if one is
available, at any price.
Changes in pricing were reflected in some industry classes. rates moderated slightly for contracting
risks. however, energy risks corrected more notably, adjusting from an average rate reduction of
minus five percent in June to minus three percent in July.
The recession has significantly impacted the price of oil and natural gas, which have fallen
from the 2008 market highs by well over 50 percent. The resulting decrease in activity has
significantly impacted the premiums received by insurers. As long-tail claims mature, the
ongoing premium flow is unlikely to be robust enough to generate acceptable returns at current
rate levels. As a result, continued rate adjustments are expected in the energy sector, with an
overall rate increase by year end.
54 | INTELLIGENT INSURER | September 2009
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