The insurance market continues to be unpredictable with market
movements varying almost quarter to quarter.
The influencing factors of market
profitability, the economic environment,
climatic conditions (natural events),
investment market volatility and
individual market strategies remain the
same. What does differ, are the individual
fluctuations and impacts of these factors.
2012 has seen:
- a reduction in catastrophe events
- premium increases materialising for most policy holders
- a general tightening in overall
- Insurers looking to increase capacity
offering for low hazard clients
- the first six months have seen most
insurers report a return to profitability.
Insurers are more disciplined in
how they price risk and are carefully
scrutinising risks and policyholders on
a case by case basis. Those in high risk
areas or with high risk characteristics are
facing more scrutiny than ever before.
Areas of concern continue to be:
- in high natural catastrophe zones
- clients who have suffered large
- clients with operations consisting of
inferior construction, e.g. EPS.
Those in sectors with relatively low claims
activity are likely to be treated more
favourably, especially if they demonstrate
a commitment to risk management,
prepare well ahead for renewal
negotiations, and explain their risks
effectively to their Insurers. Insurers are
adjusting their return on capital by better
risk selection, rather than attempting
broad brush premium increases.
That said, with the first half of 2012
being in stark contrast to 2011, Insurers
are showing signs again of moving
into growth mode. General premium
increases of around the 5 to 10 per
cent mark had become the norm in
the first half of 2012 with clients who
had an exceptionally poor claims
history targeted far more aggressively
by Insurers for rate increases and many
Insurers declining to quote unsuitable
risks. As Insurers seek to move away
from unprofitable risks, they naturally
seek to replace these with profitable
business and this creates competition
for the most profitable risks.
There is growing evidence that as we
move into the last quarter of the year
this behaviour will result in a flattening
of pricing outcomes. Reductions may
be possible for those industries where all
positive influencing factors of increased
capacity and competition can be utilised.
There has been no retreat from risk by
the Reinsurance community and there
is still excess capital available to support
Insurers. However, there is no doubt that due to the losses incurred by reinsurers,
the price for this capital is changing -
though not as yet by as much as they
would deem appropriate. With direct
markets moving back into growth and
pressure back on pricing, the direct
market will look to retain risk that they
may traditionally have transferred back
into the reinsurance market.
How much reinsurance pricing increase
can be transferred to insurers, without
losing their business, is the bigger
question for the remainder of 2012.
Whether further Reinsurance pricing
increases can be achieved, is probably
the single biggest "market influencing
factor" for the second half of 2012.
Whilst this wont immediatley influence
direct pricing it will be interesting to see
how long the reinsurance market will
maintain their position before looking
to return to the market to regain market
share. When this happens, market
competition will grow with further
pricing reductions to be expected.
For clients, quality risk information and
negotiating renewals in a timely fashion,
is the key to ensuring insurers respond
favourably to the terms applied to
high calibre risks. Looking forward, the
insurance industry is in good shape, with
ample capacity available. We believe that
this capacity will result in a cap being
maintained on premium rises during
the remainder of 2012 unless further
substantial catastrophe losses occur.