Risk managers will find a different insurance market when they buy property coverage this year. But how will the transition to a hard market progress?
By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance?
VANCOUVER---The analogy out there for the property market is that the switch has been flipped. Gone is the soft market. All hail the hard market.
Except that reality is not so simplistic, at least according to leading property underwriters who spoke with Risk & Insurance? on-site at the 2011 meeting of the Risk and Insurance Management Society Inc.Instead, the property insurance market is in transition, and the picture on rates is mixed. Risk managers who perhaps have a history of losses and a deal of catastrophic exposure won't be seeing rate drops or even flat rates--but rate increases. Others who better manage their company's catastrophe exposure might see better rates, but gone are the days of double-digit decreases.
Corporate insurance buyers with large, complex property programs might even be seeing different reactions from the individual carriers in their towers.
Still, as complicated as the picture is, let's try to generalize as much as possible.
Even in the first quarter, said Tony Mammolite, global chief of property for Bermuda-based Ironshore, a surplus-lines player, the property market was seeing "rate declines starting to decline." Ironshore in particular has seen no rate declines and better than flat rates.
"We're satisfied with the progression we've seen so far," Mammolite said, adding that it would be best for the transition to a hard market to be steady. A rate spike, he said, wouldn't be good for anyone and wouldn't be sustainable.
Jon Hall, executive vice president at FM Global, the property insurance specialist, is seeing a flat market overall out there at the moment. From his view, the market is not "distressed."
"Good news is, there's a lot of capital," he explained.
Still, capacity in the market will "slowly but surely" contract, he added. Reinsurers appear to be "locking down" for July 1 renewals, though even then he doesn't foresee large rate increases from insurers' insurers.
"Seeing rate reductions by and large for the most part is over," said Mike McCrimmon, senior vice president of international property at Allied World. "Allied World's recent experience in the treaty reinsurance market is that reinsurers have begun to raise prices."
And some primary carriers in this "skittish" market are already reducing exposures.
The trigger was in part Japan, where a March 11 earthquake might have "caught off guard" the insurance industry, he said.
It does not help that the global property insurance industry has been suffering losses seemingly on a weekly basis, starting with Chile last year, then the two New Zealand quakes, the Australian floods, winter storms in the United States and Europe, and most recently the tornadoes in the South and Midwest. The price tag for those tornadoes could be $2 billion to $5 billion, according to modeler Eqecat Inc.
Another factor is the release of the newest U.S. hurricane model from Risk Management Solutions Inc., which pushed up frequency and tail risk for many insurers' books, according to McCrimmon.
Carriers could now need to charge more rate for the capital they allocate, explained Mammolite.
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