Lockton: Commercial Lines Capacity ‘Remains Plentiful’

October 29, 2010

Underwriting capacity remains plentiful across most lines of commercial insurance and there are no significant insurance coverage restrictions, despite major losses associated with the Deepwater Horizon spill and the Chilean earthquake, according to a recent market report.

In its Market Update Fall 2010, insurance broker Lockton concludes, however, that current pricing situation is “unsustainable in the long-term,” but hardening of insurance prices will only be seen when insurers and reinsurers “start to significantly eat into capital reserves.”

Commercial insurance market highlights cited in the report, include the following:

Global casualty – Tony Hardy, managing director of Global Casualty in the insurance broker’s London office said: “There is scant sign yet of firming pricing in the casualty market. But, with interest rates remaining resolutely low, there is some suggestion that insurers may be leaning a little heavily on releases of past-year reserves to shore up their results. How sustainable this approach will prove in the longer-term is very much open to question.”

International property – Simon Scholfield, regional managing director, Risk Solutions said: “The London market has been carefully managing its aggregates in recent years to ensure that any one event does not overexpose an individual company or syndicate. However, recent events such as the earthquake in Chile and European windstorms have reminded us of the power of nature to undermine the best-laid plans of individuals and corporations.”

Financial Risks – Dennis Love, vice president, Lockton Financial Services in the insurance broker’s Washington, D.C. office, said: “Commercial insurance market capacity remains abundant, leaving D&O insurance buyers with many options. In addition, brand name insurers that suffered ratings downgrades during the credit crisis of 2008 and 2009 have now stabilized, so predictions of a ‘flight to quality’ have not materialized to any great degree.”

Energy – David Way, executive director for the insurance broker in London, said: “Across most areas of the energy insurance market, capacity was at record levels in early 2010, and rates have been highly competitive. The obvious change is the offshore market, where the Deepwater Horizon explosion and subsequent oil spill has prompted insurers to adopt a much more cautious approach to similar risks.”

“As the energy sector prepares for the reinsurance renewals and the next big renewal season between February and July, the BP disaster will have an effect on the renewals,” said John Rathmell, president of Lockton Marine & Energy in Houston. “Those accounts that renewed before the BP disaster could expect to see some rate increases this year. In the immediate aftermath of the Macondo blowout, rates increased about 15 percent to 25 percent. By the time those early accounts renew in 2011, rate increases may moderate somewhat but are still likely to be up compared to last year.”

Source: Lockton

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