NU Online News Service, April 27, 11:59 a.m. EDT
Ample capacity remains for new business in the insurance marketplace, but catastrophe losses are beginning to strain rates and increases are likely in some sectors, according to a report released by Marsh.
The insurance broker's “Spring 2011 Insurance Market Update” report, released today, says the significant losses at the start of this year mean that the 2011 budgets for catastrophe losses among many insurers and reinsurers have already been “substantially eroded.” In some cases those budgets may have been exceeded. That portends rate increases in the coming year, principally for catastrophe exposures in those regions immediately affected by recent events.
“The global insurance market faces substantial pressure, especially with the upcoming 2011 U.S. Atlantic hurricane season predicted to be more active than usual,” says Nicholas Bacon, CEO of Bowring Marsh, in a statement. “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.”
There is also concern that the revised hurricane catastrophe model being released by Risk Management Solutions (RMS) will put pressure on rates.
“Given these changing market fundamentals, there is insufficient support for the continuation of a softening market cycle,” he notes.
Where catastrophes have occurred, or where there is significant exposure, increases could range from a high of 25 percent in Japan to more modest high of 5 percent for California earthquake.
For the U.S. market, the report says reinsurance renewals for property risks from May to July could be impacted by the RMS 11 revised catastrophe model. Other lines of business are not being impacted that significantly, but rate reductions appear to be smaller, such as in commercial directors and officers.
“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,” says Duncan Ellis, U.S. property practice leader for Marsh. “Organizations that achieve the best results are the ones most able to demonstrate their ongoing commitment to proactive risk management.”
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