Global Property Insurance Market Remains Volatile: Aon Benfield

In terms of global underwriting volatility, the property insurance market remains substantially more volatile than other major lines. In Germany and Spain property is nearly twice as volatile as motor, the most stable line; in the U.S., property is nearly three times as volatile, and in France, it is four times as risky.

Those are some of the conclusions from a new risk report from Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corp.

Aon said that overall volatility parameters are in line with last year’s study, but they do not yet reflect 2011’s significant catastrophe activity.

The report, which ranks the top 50 global markets by property/casualty gross written premium (GWP), reveals that the U.S. market leads the way with a GWP of $455.98 billion and 3.1 percent insurance penetration (defined as the ratio of premium to GDP), followed by Japan ($76.93 billion), Germany ($67.79 billion), the U.K. ($62.66 billion) and France ($59.76 billion).

China ranks sixth, with a GWP of $45.83 billion and 0.8 percent insurance penetration.

According to Aon, international premium growth remains a challenge for the industry with none of the top 10 countries showing an increase in insurance penetration. Absolute premiums decreased in five of the top 10 countries, and, other than China, showed only modest increases in the others. Combined with depressed investment yields, insurers remain under significant pressure to expand their top line results, according to the report.

The study also highlights that despite recent favorable development in the P/C industry’s reserves position, reserve risk ‘remains a potential significant source of leveraged cyclical uncertainty and a continued threat to insurer solvency.’ Based on historical variance in reserve patterns the study estimates that aggregate U.S. industry reserve development of more than $60 billion can occur once every 15 years, or roughly once per cycle, which is consistent with experience from the last two soft markets.

Aon’s “Insurance Risk Study,” now in its sixth edition, provides underwriting volatility benchmarks. Its data spans 47 countries and key business lines representing more than 90 percent of global property/casualty insurance premium.