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Willis: Soft Market Persists, Despite Recent Spate of Natural Catastrophes

Source: Willis

Posted on 03 May 2010

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The soft insurance market is likely to continue despite an increase in the number of natural catastrophes in early 2010, according to the latest issue of Marketplace Realities & Risk Management Solutions, the long-standing annual series published by global insurance broker Willis Group Holdings.

Available free of charge on the company's website,, the report compiles market intelligence and analysis from Willis experts in the areas of Market Security, Property, Casualty, Employee Benefits, Directors & Officers Liability, Cyber, Construction and Surety coverage.

“The persistence of the soft rate environment in most lines, however, does not mean the marketplace is static,” Willis Chairman and CEO Joe Plumeri wrote in an introduction to the report . “As these articles attest, the offerings and strategies of insurance carriers are always in motion, and the smart buyer will take advantage of a buyer’s market not only to lower costs, but to adjust and improve coverage in ways that promote organizational goals and ambitions.”

Subtitled “Careful Steps,” the publication aims to help insurance buyers take full advantage of the constantly evolving marketplace for risk products and solutions.

According to the Market Security article, improving financial market conditions in late 2009 and early 2010 boosted insurance industry capital positions. However, the struggling global economy is impacting overall demand and insurers’ top-line growth, and underlying underwriting profitability is deteriorating, a trend that is expected to continue in the near term. Buyers are set to gain from market competition as market churn continues to drive premium rate declines across many classes of business, despite some tempering from recent earthquake losses.

According to Willis, the Property sector remains soft — and continues to soften — even for risks with high catastrophe exposures. The broker said that on recent renewals, buyers have seen decreases of up to 10 percent on catastrophe accounts.

Willis experts in Casualty say the long soft market continues to be fueled by aggressive price competition in the face of declining exposures and, in some cases, rate levels. To retain business, many carriers are lowering their collateral requirements. Umbrella / excess capacity remains plentiful, and rates are approaching historic lows, with claim trends holding steady or worsening. Strategic buyers, focused on managing loss costs that represent up to 65 percent of the total cost of risk, are likely to be rewarded with better program designs, superior terms and conditions and state-of-the-art service.

In the wake of broad and complicated health care reform, Willis Employee Benefits experts offer help in minimizing risk by keeping track of numerous additional legislative initiatives on the state and federal level, while providing advice on dealing with the impact of new laws in both the near and long term.

Willis’ Directors & Officers specialists comment that a stable D&O marketplace offering new and often expansive terms and conditions may mask changes on the horizon. For now, terms and conditions are improving for buyers in primary as well as excess forms. The report noted that Willis clients experienced a 24 percent increase in D&O claims in 2009 compared with the previous year.

The Cyber Risk article points out that cyber risks are increasing in both frequency and severity due to increased reliance on technology and increased regulation. The market is maturing alongside the risk, with more carriers offering solutions as more companies seek protection. Cyber crime is one of the growing priorities risk managers face and companies seeking catastrophe-level coverage should find the insurance market readily able to meet their needs.

According to Willis Construction analysts, significant capacity, declining exposure and rising competition in most lines have sustained a soft rate environment. With few exceptions, it’s a buyer’s market for all Construction coverages, including Workers’ Compensation, Builders Risk, Professional Liability, Environmental, and others.

Authors of the Surety Marketplace article warn that buyers of Surety products should prepare for the worst as a long-anticipated loss cycle may be imminent. Although yearend 2009 data is not yet available, it is likely the Surety industry experienced contraction in its top line for only the third time since 1997. Yet no significant changes in overall industry pricing are anticipated in 2010, unless loss activity rises suddenly.