Catastrophe losses approached record levels in the first quarter but despite this commercial property/casualty insurance rate increases were confined to loss-affected exposures.
In regions and for classes of business not affected by recent losses, there was little change in market conditions in the first quarter of 2011 as overall insurance capacity remained plentiful, especially for new business, insurance broker Marsh reports in its Spring 2011 Insurance Market Update.
The Marsh analysis is in line with that of the most recent RIMS Benchmark Survey, which found that most commercial lines insurance prices continued their downward trend in the first quarter due to an overcapitalized market.
Also, insurance analysts at Conning Research & Consulting this week projected that while overall property/casualty insurance premiums are growing slightly, the growth is not enough to signal a market turnaround.
Marsh reports that property rate reductions may still be generally achievable, though more difficult to obtain. Organizations with catastrophe exposures, especially those situated in regions affected by recent events, however, will likely see increased rates at renewal, according to Marsh.
Despite no immediate turn in the market, many insurers’ and reinsurers’ 2011 budgets for catastrophe losses have already been substantially eroded, if not exceeded, the report notes. This is due to first-quarter losses including those from the Australian floods, the February 22 earthquake near Christchurch, New Zealand, and the devastating March 11 earthquake, tsunami, and nuclear disaster in Japan.
But additional catastrophe losses could impact reinsurance pricing, the Marsh report says.
“The global insurance market faces substantial pressure, especially with the upcoming 2011 U.S. Atlantic hurricane season predicted to be more active than usual,” said Nicholas Bacon, chief executive officer of Bowring Marsh. “Any future catastrophe losses this year are more likely to directly impair the capital positions of reinsurers than impact earnings, which could drive rates higher.”
Bacon said the introduction earlier this year of a major revision by Risk Management Solutions to its widely-used hurricane model also will add to upward property catastrophe pricing pressure.
“Given these changing market fundamentals, there is insufficient support for the continuation of a softening market cycle,” Bacon said.
Marsh’s report also found that as a result of the first-quarter losses, insurers are re-emphasizing their requirements for comprehensive underwriting data that can be modeled to generate reliable forecasts. For example, insurers are looking for insureds to thoroughly substantiate their contingent business interruption (CBI) exposures. Many insurers also are pushing for reduced sub-limits and increased deductibles for both CBI cover and catastrophe exposures.
“More than ever, the prime determinants of potential capacity and the ultimate cost of risk transfer will be each organization’s unique risk attributes, in addition to the structure and quality of its marketplace submission,” said Duncan Ellis, U.S. Property Practice Leader, Marsh. “Organizations that achieve the best results are the ones most able to demonstrate their ongoing commitment to proactive risk management.”
Following substantial disruption to global supply chains as a result of the earthquake, tsunami and nuclear disaster in Japan, many organizations are reassessing their vulnerability to such events and the efficacy of their risk management programs, according to Marsh.
“The events in Japan exposed significant gaps in business resiliency at a number of firms,” Ellis said. “This further highlights the need for organizations to take a 360-degree view of their end-to-end supply chain identifying demand, supplier, and operational risks as well as the financial impact of failures.”