DVS members expect stable or even improved terms at year-end renewal

The vast majority of those who took part in CRE’s survey believe that commercial insurance rates will either stay the same or even fall again at this year-end despite the prolonged soft market, rough financial markets and rising loss levels and combined ratios faced by the leading insurance companies. Only one of the 20 insurance buyers surveyed fears that he may face higher premiums at this renewal and he does not expect them to be dramatic increases. This poll supports the conclusions of a series of interviews carried out by CRE in recent weeks with the leading German industrial insurance carriers, brokers and credit analysts.hideThe poll of the German insurance market found that participants agree that the soft market conditions that German industrial insurance buyers have enjoyed for so long look set to continue despite combined ratios that are nudging 100%. This is because the insurers are still making profits and competition remains high. Insurers are adamant that they are in no mood to follow the market down to silly levels and a correction is sure to follow any significant spike in losses, further deterioration in investment returns and any increases in the cost of capital through external pressures such as Solvency II, Europe’s planned new capital adequacy regime for insurers. The message for German insurance buyers from the insurers appeared to be that they ought to lock in their currently advantageous terms while they can. Karin Clemens, credit analyst at Standard & Poor’s in Frankfurt told CRE the German industrial lines sector is characterised by ‘abundant’ capacity and that a rising number of mid-size and smaller domestic players plan to grow their market share in this segment further intensifying competition. The majority of those DVS members polled by CRE agree with the credit analyst and expect terms to be either stable or even soften further as long as the market is not hit by massive losses such as a Katrina-style hurricane over the coming weeks. “I expect, as always, rather small ajustments following loss ratios,” said one insurance buyer from the financial services sector. “Rates will stay the same as we enter into long-term-agreements for most insurance programmes. Adjustments will only be seen for increased sales, insurance-values and the like,” said another buyer. Buyers are aware, however, that the market is possibly nearing equilibrium and could turn if conditions deteriorated significantly for insurers. At this point in the market the quality of the risk management and recent loss records should become an increasingly important factor, argue some buyers. “Rates should reflect the risk involved in an individual business, claims record and the state of the market. Rates might be soft but the overall economics of the financial market indicate that rates have bottomed out. Given [our] risk profile I would expect stable premiums,” said one respondent. “In general stable. But it depends on the branch; reducing in property damage & business interruption but increasing in [Pharmaceutical] product liability,” commented another. “I do not see significantly more room for further decreases—as corporate insurance programmes at least have undergone intense negotiations with positive effects on both premium and the contractual side in the last years. As contracts and premiums usually have been fixed for the next two years, where possible, I don’t expect a rise of insurance costs in the near future,” said one leading insurance manager from the retail sector. “For a mid-term view, I personally would say that for some insurance lines the premium could increase because of Solvency II or other regulations. Also, we might see a concentration of insurers. Yet our aim is to link our insurance costs not only to market performance, but also to our individual risk which we are constantly striving to improve. But time will show if the insurers take this into account as promised,” she added.

DVS members expect stable or even improved terms at year-end renewal

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