Overseas buyers eye up potential in commercial insurance

Overseas buyers eye up potential in commercial insurance

Overseas buyers eye up potential in commercial insurance

Overseas D&O insurers are increasingly engaging directly with the Australian market due to the oversupply of D&O capital, according to Aon’s Q3 market update.

With an oversupply of D&O capital available in the Australian market, overseas D&O insurers are directly engaging with Australia.

The report found that many of them have developed local agency arrangements, while others have committed to the more costly and time-consuming process of establishing their own local licence. This leads Aon to the conclusion that D&O capital is unlikely to diminish any time soon.

All major policy classes experienced a growth in capacity, Aon reported. In property, insurers saw reduced orders on the majority of larger placements in June, with emerging capacity from local and international markets, demonstrating that market conditions continue to improve for buyers.  “Singapore in particular, continues to offer Australian clients market capacity,” it added.

Buyers are in the power seat in professional indemnity as insurers strive to maintain market share and revenue against a backdrop of strong competition. Aon reports that insurers offering continuity, improved policy wordings and an increased appetite have essentially produced a buyer’s market for those with positive claims records. Aon added that Australia has outdone the London market in offering an insurance solution to a difficult placement.

The general liability class continues to rely on investment income to offset long term claims reserves. Aon warned that while overall market competition and surplus capacity will dampen expectations of rate increases, there will come a time when liability rates will be increased across the board and initial seeds being sown with a handful of insurers pushing rates up at the expense of their portfolio growth.

Insurance rates have hardened as capacity for specific business sectors has continued to decrease in general liability such as policyholders exposed to bushfire liability and offshore energy risks.

Insurers' trade credit appetite has remained relatively stable over the past six months despite a negative outlook for the first half of 2013, driven by the on-going economic slowdown in Europe, the lack of adequate bank financing and a deteriorating general risk environment.

Local demand for trade credit Insurance is on the rise, according to Aon. New market entrants are translating to increased capacity and maintained competitive rates. Additionally, appetite from the participating insurers for writing surety bonds has increased, and for the right companies, who meet the underwriting criteria, there is considerable competition.

The trend towards increased claims activity relating to workers’ compensation recovery actions continues. Clients with a poor loss history will come under pressure to increase the level of self-insured retention applied to this risk.  Aon advises policyholders to consider how they will handle harder market conditions in the future, as liability rates are widely considered to be at their lowest point.  It suggests locking in longer term deals now at current rates, if available.

There has been no material change to the financial institutions insurance market over the past quarter, the report stated, “but demand for insurance products and services remains high in spite of low interest rates and poor investment returns impeding growth”.