French market stable but rate increases more likely

Insurance rates in France remain stable, but interest rate rises or further heavy losses could yet see the market harden, according to brokers and insurers attending the AMRAE conference in Marseilles. While insurers have talked of the need to raise rates following heavy nat cats in 2017, French pricing has largely been the same as last year, according to Fabrice Domange, chief executive officer of Marsh in France. “There has been more noise around market hardening but there is so much capital and competition that insurers continue to maintain or reduce prices in France,” he said. Mr Domange added: “There has been a change of attitude and a willingness by insurers, but the reality is that there is so much capital that the market has remained at previous years’ levels.” Zurich has seen an overall stabilisation of rates across its portfolio in France, but the market is now polarising, according to Florence Tondu-Mélique, the firm’s French CEO. While less-exposed risks are seeing rate reductions, the market for large, complex and international risks is flat or hardening, she said. “On the surface, we have not witnessed the market turnaround that people may have expected. But if you look carefully by category of risk, we are at an inflexion point underpinned by a polarisation of expectations and a shift in the nature of risks,” she said. The catastrophe events of 2017 were a big deal for the global insurance market and will affect the balance sheets of insurance carriers, noted Jean Rondard, head of corporate risk broking at Gras Savoye Willis Towers Watson. But this has not caused a market-wide hardening in France, he explained. “Globally, there has been an intent by insurers to increase rates. But actually, when you look at the French market, which remains competitive and with new capacities continuing to enter the market, there are still opportunities to achieve optimisation and rate reductions,” he told CRE at Les Rencontres de l’AMRAE this week. However, market sentiment in France has changed, rate reductions have slowed and insurers are looking to raise prices for accounts with losses or nat cat exposures, Mr Rondard said. “Rates continue to decrease, but at a slower rate, and the capacity of insurers to react [to losses] is starting to be important. We are not seeing a reversal [of the soft market] but there is a significant change for catastrophe exposed business and loss affected accounts,” he said. The market could yet change, but it would require even larger losses than 2017, according to Marsh’s Mr Domange. “Further catastrophe losses or a significant rise in interest rates could move the market. But there is so much capital in the market that we would need to see catastrophe losses twice that seen in 2017, to really impact rates,” he said. Interest rate rises are potentially a bigger driver of changing market conditions than claims, according to Mr Leblanc, chairman and CEO of Aon France. “The main factor that will impact the insurance market is capacity. We still have overcapacity, but if interest rates were to rise significantly it could reduce capacity in the insurance market,” said Mr Leblanc. “This should not lead to a lack of capacity in the short term, but it could reduce capacity, which would cause prices to rise gradually. This will not be a fast or strong hardening, but there will be some hardening of the market over time,” he said. Insurance buyers in France should not expect to see continued softening in the market in the foreseeable future, said Mr Leblanc. “We saw at the January renewals that underwriters were more reluctant to write some risks, although we were able to place these risks and with good conditions and prices,” he said. A change in market conditions now looks much more likely than it did a year ago, according to Mr Leblanc. “A change in market condition is more likely because of rising interest rates. The reality is that changes in interest rates are a bigger factor than claims,” he said. Vincent Vandendael, chief commercial officer at Lloyd’s, noted that the majority of primary business is yet to renew in 2018, with key renewals still to come in April, June and July. He also believes that renewed underwriting discipline and a reduction in reserve releases could yet lead to changes in market conditions. “There is a lot of business yet to renew and we will have to see how the market pans out in 2018 and 2019. Market softening has stopped, reserve releases have reduced and we definitely see a strong focus on underwriting discipline, which I expect will continue,” said Mr Vandendael. “Reserve releases have clearly reduced significantly and people will start to see the true underwriting results, which will fuel further rate firming,” Mr Vandendael added.

French market stable but rate increases more likely

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