Gary Marchitello, managing director of Aon's National Property Practice Group in the United States, said double-digit reductions of property rates in 2003 are “good news,” especially since average increases in 2002 were 42 percent. He noted that capacity is back to $2.5-to-$3 billion, which has driven rates down.

He noted that before Sept. 11, 2001, capacity was $3 billion, but that that number shrank to $0.5 billion after the terror attacks.

He said that even though capacity is back, limits are not as “robust” as previously.

Deductibles are coming down, he said, though not dramatically.

Aon's 2004 U.S. Property Report and survey also found that buyers, in contrast to last year's survey, are increasingly concerned about the impact of terrorism and the uncertainty surrounding the anticipated withdrawal of the U.S. Government's Terrorism Risk Insurance Act.

The survey also found that while the insurers are repairing balance sheets and underreserving of previous years, competition continues to grow as they battle for market share.

An informal survey of both buyers and sellers within the 2004 U.S. Property Report found that insurance buyers:

View captives and self insurance as the most significant change to their risk financing strategies in recent years.

Anticipate a period of uncertainty while U.S. carriers decide whether to continue offering terrorism cover.

Sellers, on the other hand:

Found it difficult to maintain market share in the face of growing competition.

o Saw the U.S. and Bermuda markets as most dominant for U.S. property insurance.

Mr. Maher said the downward price trend is expected to continue unless the market experiences “a rapid upturn in either manmade or natural catastrophes, which in 2003 were at a remarkably low level.”

Mr. Marchitello added that buyers of property insurance “tend be the first to reap the benefits of the insurance market cycle.” He said the recent downturn has enabled buyers “to reduce costs without having to significantly increase retentions.”

Reproduced from National Underwriter Edition, April 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.