Willis: Power Market Review – Still No Hard Market, Despite Losses

2011 looks set to be one of the worst years on record for natural catastrophe events; continuing civil unrest roils the Middle East and Europe’s economic crisis shows no signs of abating. All of those conditions should be pointing to harder market conditions for the insurance industry.

However, at least in the power markets, this doesn’t seem to have occurred. Willis Group Holdings’ annual Power Market Review reports that the onset of harder insurance market conditions is “currently being restrained by overcapitalization and the absence of a ‘game changing’ event that would fundamentally alter market expectations and behavior.”

The report does point out that “2011catastrophe losses have had a predictable impact on underwriting results, with many insurers posting significant underwriting losses in the first nine months of the year. Together with changes in underwriters’ ‘cat’ models, this has had an effect on the cost and availability of ‘cat’ capacity, with an expectation of further development over the January first reinsurance renewal season. However, this has not translated to a general market hardening.”

The report notes that the power sector of the market has seen a continuation of “attritional” losses during 2011, and has also been hit by three “‘mega claims’, defined as claims in excess of $100 million, but remains well capitalized. Global underwriting capacity for the power sector remains close to $4 billion taking the combined market segments (specialist power, general property markets and mutuals) into account.”

Graham Knight, Managing Director of the Willis Power Practice in London, noted: “There has been no meaningful change in the amount of capacity available for the power sector in the last 12 months. There are, however, increasing signs of change in risk appetite. The general insurance market is still reasonably well-capitalized, and the outcome of the forthcoming 1 January treaty renewals will signify to a large extent the direction of the market in 2012.”

Highlights of Willis’ report include analysis of the following sectors:
• General overview of power sector claims in 2011 and their impact on the market;
• Focus on the Asia Pacific power market;
• A series of special reports including an engineering study of generator life cycle management and a report on the potential use of captive insurance companies in the power sector;
• Developments in the niche power areas of Renewable Energy, Nuclear and Mobile Power;
• Reports on the state of different insurance market sectors, including Liability, Terrorism and Political Violence, and Construction.

The report further features contributions from a variety of external industry specialists, including a leading London lawyer, a loss adjuster and a forensic accountant, and the UK head of power and utilities business at Ernst and Young.

Source: Willis Group Holdings

Topics Profit Loss Pricing Trends Market