Flat market for corporate business forecast by major European carriers

European corporate insurance buyers will be relieved to hear that the leading commercial insurance companies expect a flat pricing year in 2010. Some hope for minor increases, some even fear further decreases and all say that there are clear exceptions such as the aviation and financial institutions markets that have seen a real hardening in terms. But, the consensus is that a combination of better than expected underwriting performances in 2009, largely driven by lower than average losses, benign reinsurance rates (click here for full reinsurance analysis) plus competition for falling volumes of business because of the economic downturn will fuel healthy competition and keep insurance buyers happy.hideAxel Theis, CEO of Allianz Global Corporate & Specialty said that 2010 will be an ‘interesting’ year with lots of uncertainty in the market about how companies will emerge from the financial and economic crisis and the impact upon balance sheets, strategy and competition. ‘SIDEWAYS RATING’ “The reinsurance renewals were not as tough as was originally expected and so I think we can expect development on primary rating in 2010 to be generally sideways. I am not surprised because this is just reality given the loss development in many segments. This is apart from some markets such as the aviation market which has seen some larger loss incidents and of course for financial institutions (FI) business,” said Mr. Theis. Lex Baugh, Chief Executive of Chartis in the U.K. pointed out that the recession is not yet over in the ‘real’ economy. “Once it is then I will have reason to be more optimistic about growth in premiums and levels of cover,” he said. Mr. Baugh said that loss costs have increased generally, partly because of the recession. In addition the cost of capital for the industry has increased and Solvency II may mean a greater requirement for capital, he added. “These demands mean there is growing pressure on rates to rise which will, at some point, exceed the downward pressure,” said Mr. Baugh. Thomas Hürlimann, Chief Executive Officer of European corporate business at Zurich, was more bullish than most. “In 2009 we have seen rate increases and we expect to see rates continuing to increase in 2010. Rate increases are still required to offset the lower interest rate environment and claims inflation in some lines of business,” he said. Mr. Hürlimann noted that Zurich continues to see an increased differentiation by the market between good, fair and poor risks and said that insurer financial strength and long-term relationships remain critical to customers. Dr. Christian Hinsch, Chief Executive Officer of HDI-Gerling in Hanover, believes rates will climb in some areas but generally remain flat. “We do not see much development in either direction on rates. It will be more or less flat except in specific markets like aviation and also Directors and Officers for financial institutions,” said Dr. Hinsch. UPS AND DOWNS “We know the market goes up and down and we can manage that. I am not really surprised that it is flat. It is always the same in cycles. Until the effect of economic change is felt in the balance sheet of the insurers the reaction does not tend to occur,” he continued. Philippe Rocard, Chief Executive of AXA Corporate Solutions, said he sees light at the end of the tunnel. “I think most of the decreases we have seen in recent years are behind us. For AXA Corporate Solutions and the market as a whole we are seeing the beginning of the hardening in the market in most lines of business. Airlines coverage was the first to jump. Personal lines business in France is also increasing in almost all cases. Corporate insurance has not jumped as in 2002. But we do feel signs of a hardening,” he said. Claudia Hasse, Chief Underwriting Officer Property, for MARP, the Munich Re corporate insurance operation, said that the market is currently not very ‘homogenous’. “It really depends upon the line of business or region as there are different cycles. For example North American property business increased in 2009 by about 10% especially for natural catastrophe perils but we do not expect that tendency to continue. We expect it to be flat this year. For Europe and the rest of the world it will be softer than in the U.S. but we expect it to remain stable,” she said. REGIONAL DIFFERENCES “The casualty market is quite soft especially in the U.S. and we do not see any change there. Really it will depend of course upon any major events which can quickly change the market. The reason why it is so stable is that we did not have many losses in 2009 compared with a difficult 2008 when there were many losses, both large ones and frequency losses,” added Ms. Hasse. Fred Kleiterp, Head of the Europe, Middle East, Africa (EMEA) & Asia Pacific unit of Swiss Re’s Insurance & Specialty division, was possibly the least optimistic, or most realistic, of the big insurers on the outlook for 2010. “Although all indicators would have suggested market hardening, unfortunately this is not what we have observed to date. For the January 1 renewals, pricing was flat to down with significant competitive pressure. These observations hold true for the European markets in general, although naturally there were some variations by region, such as France and Austria where property rates held up relatively well. In absence of any significant events, we would not expect this to change in the short term. Rather we would expect a 5-10% drop in rates going forward in 2010 for the overall market,” said Mr. Kleiterp. But Mr. Kleiterp did say that he sees some ‘attractive pockets’ of opportunity, where ‘expertise and innovation’ can create value for both customers and insurers alike. Chris Smith, Director - Global Europe at RSA said he sees little evidence for change in terms and conditions at this stage. Gernot Klantschnig, Regional Operating Officer Continental Europe, Asia and Latin America for XL Insurance agreed with Mr. Smith. “It is extremely difficult to predict rates in the market and developments vary quite a bit by country and line of business. Last year we saw modest rate improvements in some areas throughout continental Europe and in general terms I assume the trends from 2009 to continue in 2010,” he said.

Flat market for corporate business forecast by major European carriers

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