Marsh Sees Credit Crunch ‘Hardening’ Rates, ‘But Not Just Yet’

September 12, 2008

According to a recently released report from Marsh, “insurance rates across most lines of business in the Europe, Middle East and Africa (EMEA) region continued to soften in the first half of 2008.”

However, “the report also identified trends being accelerated by the credit crunch that suggest that the market may harden in the near future.” At present this hasn’t happened, as Marsh said, “most lines of business” in the area “continued to soften due to strong competition,” with the exception of trade credit.

Jeremy Cooke, Head of Global Market Relationship Management at Marsh, noted: “Trade credit insurance premiums are expected to increase further over the next few months as a direct result of the economic downturn. While we are yet to see whether the difficult economic environment will also impact the financial and professional market and other lines of business, there is some evidence that there is increased claims activity in this area.

“The general softening trend that we have seen over the past few years is eventually going to come to an end. We expect the market to harden in the near future, a change that could be accelerated by increasing claims,” he added.

Marsh’s “EMEA Insurance Market Report Midyear 2008” covers property, casualty, motor, healthcare, trade credit, environmental, directors’ and officers’, professional indemnity and financial institutions’ insurance across the EMEA region including all major western European economies, the Nordic countries, Turkey, Israel, Russia, Poland, the Baltic Countries and several other Central European and CIS countries. Saudi Arabia and the UAE are included, as are South Africa, Nigeria and several other African countries.

Marsh analyzed the EMEA property sector as follows:
“The market for property risks continued to soften in the first half of 2008 across most of EMEA due to strong competition among insurers. In the UK, catastrophe cover rates for large and multinational organizations are now lower than a couple of years ago; there is a large amount of capacity and high premium targets.

“While the economic crisis has no real impact as yet, it is felt that the rates have reached, or are at least approaching, the bottom and rate reductions will be harder to find. There are some signs that the food industry is becoming an issue for property insurers, with reduced capacity and premium increases following a number of substantial losses.

“In Belgium, the property market continued to be soft with average premium reductions of up to 30 percent. Accounts that had not been renewed for a couple of years were able to secure much more advantageous terms and conditions. Insurers remain very aggressive and capacity is still widely available.

“In South Africa, the market began to harden following a couple of years of underwriting losses. In the first half of this year premium rate increases of up to 10 percent have been seen. The mining market has also hardened substantially following a number of high profile losses around the world and a withdrawal of capacity

“Large scale superstructures come on to the market almost every week in the United Arab Emirates (UAE). The increase in the presence of overseas investors and corporations is creating a need for sophisticated insurance providers and advisors. The region seems to be coping well and there is new capacity available from Takaful and Free Zone companies. The combined effect of all this is a very competitive market and premium reductions of up to 20 percent.”

Marsh’s conclusions on the sate of Directors’ and Officers’ Liability were as follows:
“The first half of 2008 was marked by the heavy turbulence on stock markets across the world. Despite sharp falls in the market capitalization of many companies, the insurance market across all financial and professional liability lines remained soft. Marsh brokers were able to negotiate wording improvements and pricing reductions were achieved across most lines.

‘There is still plenty of capacity available and new players are still emerging both on the Continent and in the London market. However, claims are starting to increase in frequency. While a hardening of the market is not necessarily expected yet, the continuing increase in litigation/claims activity and degradation of the overall economic situation could lead to a different situation quickly.

“Premium rates reductions were still seen in D&O in Q1 and Q2 2008, especially for larger companies. Insurers are worried about retaining accounts and have been willing to provide substantial rate cuts, albeit justified mainly through a reduction in exposure.

“In the UK, the market remains soft with reductions of between 10 percent and 20 percent. There have been some signs of flattening of premiums on the heavier US-exposed risks. The competition is still strong with capacity at the highest levels we have seen. With several Marsh bespoke wordings available and coverage at competitive pricing, clients are finding it attractive to buy this additional capacity on very broad terms and conditions.

“In Spain, premium rates continued to decrease by up to 30 percent due to high capacity and increased competition with new entrants.

“In Italy, stiff competition for business from insurers, even where there is a bad claims history, resulted in premium reductions of up to 20 percent.

“With overseas investors and corporations pouring into United Arab Emirates, D&O inquiries are on the rise but with take-up still at a relatively low level. Access to new markets is keeping rates competitive or stable. Claims are also low in this litigation-averse country.

“In South Africa, the market has remained stable, with few claims and abundant local capacity at competitive rates. However, Botswana and Namibia were the only countries in the EMEA region to report premium increases.

Marsh’s analysis on the state of environmental coverage was largely limited to Europe, as follows:
“The Environmental insurance market is limited in Europe; in some instances it is included in general liability policies. However, with the new EU Biodiversity Directive, developments in this line of business are increasing.

“The directive establishes a framework aimed at preventing significant environmental damage or rectify damage after it has occurred. ‘Significant environmental damage’ will be defined by reference to: biodiversity – that is, damage to nature itself; water pollution; and, human health, which includes land contamination where it threatens humans. In June 2008, the European Commission sued nine EU nations, including the UK, France and Ireland for not enacting the directive into their national legislation.

“The environmental market in the UK continues to see further signs of growth, with some insurers reporting significant rises in demand and the number of policies placed. Although the market is still dominated by one-off long term transactional placements, a trend towards annually renewable policies is evident as part of a continued effort to move this class of insurance from a perceived niche offering to a mainstream product.

“Evolving environmental legislation, concern with regard to the breadth of pollution cover provided by general insurance classes, and increased awareness of environmental matters have all raised the profile of environmental risk exposures and highlighted the impact that these could have on a business. Premiums fell by up to 30 percent, predominantly due to the development of new products aimed at streamlining the environmental insurance procurement process by reducing information requirements.”

The complete report, as well as information on other lines of business are also available from Marsh at: or

Source: Marsh

Was this article valuable?

Here are more articles you may enjoy.