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Market Update
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Property - U.S.
Printable Version
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For some time, Lockton has been advising clients to take advantage of the soft
property insurance market conditions to prepare for the certain eventuality
of a sudden market shift causing less favorable terms and conditions for
insurance buyers.
We have been advising that by building relationships with multiple insurance
markets and by keeping empirical construction and engineering data up to
date, buyers would be in a strong position for an eventual hard market.
That day may soon be at hand.
We have long been concerned about the potential for big catastrophe losses.
In September, Hurricanes Gustav and Ike devastated the Gulf Coast region,
resulting in extensive damage. Estimates of insured losses from Hurricane Ike
alone range from about $7 billion to as much as $20 billion.
These losses are both serious and significant, but they are seemingly dwarfed
by the financial tsunami that is now panicking the marketplace.
Insurance company investment portfolios and the potential impact on surplus
have yet to be fully examined. Upon examination, heavy losses could translate
into reduced surplus available to write business. Some insurance markets may
no longer be able or willing to write new and existing business, while others
may sharply curtail their capacity, particularly in catastrophe-prone areas.
While capacity could be on the verge of contracting, the trend in property insurance pricing is less clear. As capacity contracts
and markets become more risk averse, insurance buyers may see higher prices for property insurance.
Prices also will be influenced by what happens at the January 1 reinsurance treaty renewals. Reinsurers may raise the price of
reinsurance in response to this year’s hurricane losses or in response to the increased cost of capital following the financial
market meltdown. Insurers would then pass those increases on to their respective clients.
At the same time, troubled insurers may worry about losing valued clients, prompting them to competitively price their renewal
book as they fight to keep their business viable during this unprecedented upheaval. If this does occur, Lockton believes this
trend will be short lived.
As of mid-October, we are not seeing big increases for catastrophe-exposed larger accounts. For some good accounts, there
are still some premium savings to be had.
One of the keys to how this market develops will be the January 1 treaty renewals. Just as critical, however, is the ongoing
development of investment portfolio losses and its affect on surplus.
As in the past, we continue to advise clients to increase their bargaining power by spreading risk across multiple insurance
markets, thereby reducing their dependence on any one market.
The wisdom of this strategy is now more clear than ever. In the coming months, some markets may disappear while others
may be willing only to write more restricted classes’ business. Buyers who have relationships with multiple markets have
greater chance of maintaining balanced programs in a very unbalanced marketplace.
Keeping empirical construction and engineering data up to date is still crucial because detailed information will be a key to
differentiating accounts in this market.
The repercussions from the big hurricane losses and the meltdown in the financial markets are just beginning to be felt in
the property insurance market. Insurance buyers should prepare themselves for a period of uncertainty and volatility in the
property insurance market.
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Please contact your Lockton Representative for further information regarding any information contained in this
market update.
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James Rubel
Executive Vice President—Property
Tel: 917.351.2570
E-mail: jrubel@lockton.com |
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