Market conditions for the first quarter of 2005 have become increasingly favorable, and the Willis Index shows that respondents are now beginning to acknowledge that premium rates are decreasing for many financial institutions by between 1 percent and 10 percent.
This is in contrast to the last Willis Index where most respondents were anticipating renewals to be as expiry or even a small increase in premium.
“We would counter that where a financial institution has not experienced a premium reduction in recent years it is often possible to negotiate discounts of greater than 20 percent,” according to the Index.
Underwriters are suggesting that the overall trend for limits and deductibles appears to be flat and, on the whole, Willis would agree with this. Some financial institutions are increasingly using premium saved across a program to purchase higher limits or perhaps a new product such as Employment Practices Liability, and Willis anticipates that this trend will increase through 2005. It is also expected that policyholders will use their increased buying power to reduce deductibles to a level which provides a higher degree of comfort.
Most underwriters are not admitting to a broadening of coverage terms however this is in contrast to almost all business that Willis has seen this year.
“We continue to see coverage terms improving across all classes of business; in particular Professional Indemnity and Directors’ and Officers’ insurance, albeit in most cases considerable negotiation is required to obtain the best product,” the Index wrote.
A key indicator of the state of the market in 2005 was the reinsurance renewal season which for the majority of underwriters occurred at the beginning of the calendar year.
“We understand that on the most part underwriters obtained treaty renewal terms that were at the same rate as last year, although in some cases reinsurers were able to impose some wording restrictions. This suggests that the slight market softening that we see at the moment has been heavily influenced by the influx of new competition as opposed to underwriters being able to reduce their own expenses. However this only reinforces the need for a strong marketing strategy generating and capitalising on market competition where appropriate to obtain the optimum renewal terms.”
Looking forward is a slightly more difficult proposition as we continue to await the resolution of the large settlements (Enron, Worldcom, Parmalat, Laddering etc). that are likely to have a material effect on many Underwriters results.
Some commentators are suggesting that large settlements by the insurance market in these cases will catalyse the hardening market cycle effectively ensuring that the slight softening that we are currently experiencing is short lived. We feel it is important to point out however that there is still a degree of uncertainty when this could take place and indeed how far reaching the effects will be to financial institutions that do not have exposure to these sort of events.
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