Insurance rates on major classes falling by up to 25%

Insurance rates on major classes falling by up to 25% | Insurance Business

Insurance rates on major classes falling by up to 25%
Insurance rates in construction, property and casualty are continuing to fall by up to 25% due to a reduction in the cost of reinsurance, though insurers are purchasing less reinsurance as they become more efficient in using capital and retaining risk.

The 2013/14 year end treaty renewal season saw overcapacity and a range of rate reductions on natural catastrophe excess of loss treaty reinsurance from 5% to 25% between January and June this year, according to James Nicholson, Willis’ head of broking and construction, property & casualty industry practice groups.

Writing in Willis' Construction, property and casualty: international market trends report, Nicholson said: “Over and above rate reductions, another positive outcome for corporate buyers is that they should benefit from an increase in the available natural catastrophe capacity, both from new capital entering the market and from existing capacity which is no longer required by insurers as treaty reinsurance.”

Policyholders who can have good underwriting data, use analytics and have strong relationships with insurers can achieve even greater reductions. The soft market is likely to continue, making it a good market for buyers, but Nicholson said the conditions will not threaten the profitability and solvency of insurers as long as they manage their portfolios.

Mike Venables, construction executive director, said rates in construction for all risks have potential for further softening due to “fierce competition for limited number of major projects plus the increase of capacity in local regions”. He said traditional property and casualty markets are keen to grow their portfolios to include construction.

In general property, rates on claims-free business are continuing to plummet by between 10% and 15%. Rupert Bedford, broking director for property, said businesses can achieve even larger reductions if they have evidence of good risk management and can provide detailed risk data and information.  He added that downward pressure continues to prevail on natural catastrophe exposed business.

Prices on casualty are falling for non-complex, single territory accounts, while local markets remain aggressive. However, Mike Newsom Davies, head of liability, said price is less volatile on complex risks and accounts buying significant limits.

Nicholson said insurers are purchasing less reinsurance because they are making greater use of data and analytics, combining underwriting
portfolios globally for given products, across geographies, and across multiple products and years, as well as rationalising across a given portfolio the value of purchasing single risk facultative reinsurance.

Nicholson said the number of natural catastrophes since the beginning of the year have not had a significant financial impact on the global (re)insurance sector. In conclusion, he said: “With signs of the green shoots of recovery in some parts of the global economy, interest rates are unlikely to fall further. Merger and acquisition activity is also picking up, including in the (re)insurance sector, where some carriers who are unable to operate profitably in a sustained soft market environment may become ripe for takeover.

“Any changes in the (re)insurance market arising out of interest rate movements or M&A activity will have plenty of visibility and lead time for corporate insurance buyers. The outlook therefore remains very favourable for corporate buyers and more particularly for the well informed and well advised.”