Although the overall market trends in both pricing and terms and conditions will not be fully developed until the July 1, 2006, Florida renewals are complete, and Standard & Poor’s says it is concerned that the improvements in pricing and coverage terms might not be as significant as previously anticipated.
S&P’s Ratings Services has been monitoring the terms and conditions of the Jan. 1, 2006, global property catastrophe insurance renewals. It appears that material improvements in pricing and coverage provisions in lines of business most affected by the 2005 catastrophes — including energy (offshore/onshore), U. S. coastal property, and property retrocession — have indeed been attained. However, these improvements are being realized only regionally where those catastrophes occurred, S&P reported, and they appear not to have spread to other geographic areas and lines of business. In these other areas, trends in both pricing and terms and conditions appear to be static. This is contrary to S&P’s expectation that increased frequency and severity assumptions would support material improvements in pricing and coverage terms outside of purely those contracts and locations that suffered losses in 2005. The trickle-down effect on other lines of business seems to have been limited so far.
In September 2005, S&P cited the recently increased frequency and severity of large loss events — including the hurricanes of the last two years, the record number of typhoons making landfall in Japan in 2004, and the substantial losses associated with Windstorm Erwin in Europe in 2005 — as the basis of the expectation that there would be broad market hardening. Information on the January renewals gives an incomplete picture of evolving market conditions, and in particular, the largest European reinsurers have yet to comment. Nevertheless, S&P remains concerned that without a broad-based hardening of rates, carriers might not be adequately pricing their business in light of the occurrences of the last two years.
Source: Standard & Poor’s
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