LTAs in vogue as market remains soft

According to leading insurers and brokers, this trend has continued during the latest round of French renewals where rates remained mostly flat with better risks able to achieve reductions. Barring a few exceptions, capacity is abundant in the major business lines. “Nothing moves, nothing changes, nothing happens,” said Anne Charon, CEO at Zurich France, summarising the state of the market. French buyers have enjoyed the benefit of fierce competition between insurers in Europe’s second largest non-life insurance market. A mostly favourable loss experience in 2013 has helped to keep capacity at high levels. Buyers are keen to exploit the soft market conditions with multi-year deals.hideSimultaneously, the sluggish French economy has reduced demand for cover with buyers focusing on more traditional coverages and loss prevention. This has forced insurers to focus on retaining business because premium growth is hard to come by. This explains their willingness to increasingly accept longer contracts despite soft market conditions. “The trend for the French market today is for carriers to put emphasis on the retention of clients. While the vast majority of customers are looking to secure their programmes with long-term agreements and roll overs,” explained Ms Charon. “The French market was not very active in 2013,” said Thierry Van Santen, CEO at Allianz Global Corporate and Specialty in France. “We’ve had many roll overs and LTAs. Generally speaking, rates are either stable or a little bit down, but as soon as clients have a claim rates are very quickly going up.” The French market is no stranger to LTAs. For a prolonged period buyers have looked to this option to take advantage of favourable rates, but their popularity has grown. “In the past two years the number of LTA contracts has increased, as well as roll over agreements,” said Patrick de la Morinerie, Deputy CEO at AXA Corporate Solutions. “LTAs gain in popularity when buyers start to believe that the market is soft enough and that they will be able to benefit from interesting rates for several years. From our point of view, the good thing about them is to forge a relationship in the long run with our best clients.” Their popularity suggests that risk managers believe the market has finally bottomed out, or at least is unlikely to fall further. However, it remains to be seen whether their use will finally coincide with a change in the rating environment. “The first driver for LTAs and roll overs has come from brokers who want to secure their portfolios. Also, many clients prefer to avoid the amount of work required to renew their policies every year,” Mr Van Santen said. “For us there are good things and bad things about a surge in LTAs. They are good in the sense that they help us to boost our retention ratios a little. On the other hand, if the market is not active, it is hard to find opportunities to grow,” he added. According to Mr de la Morinerie: “The economic environment remains a little deteriorated. It means that our clients need to keep their insurance budgets under control. At the same time there are significant delays in infrastructure projects and investments.” Any market hardening is limited to select lines affected by losses. Natural catastrophe cover is one example, said Jean Rondard, Head of Corporate Risk Management at Gras Savoye. “In property, the main characteristic of the market today is a state of vigilance against nat cat exposures, as well as terrorism, social unrest and so on,” he said. “The direct market is operating with some constraints in those areas and we work with our clients to find them alternative sources of capacity to transfer those risks with the limits that they need.” Similarly, companies who rely on suppliers based in Asia and other disaster-prone areas need to prove they have good risk management plans in place to find the coverages they require for supply chain risk. “The market used to believe that supply chain was a well managed risk, but we have understood that some companies worked with only one supplier for some of the articles they needed in their production line,” said Marc Michoulier, Deputy CEO at Marsh France. Within France, motor fleet is the business most adversely affected by a poor loss history, Mr Morinerie continued. “In motor insurance, after two or three years of very bad loss numbers, all actors in the market understood that it was necessary to correct the rates in order to balance results,” he said. Some other very specific risk areas are under pressure too. “The utility sector, and specifically trash incineration, remains sensitive as the capacity available has decreased mainly due to a bad loss record in 2013,” said Bruno Mostermans, Country Manager France for Corporate Solutions at Swiss Re. “In addition, business interruption for non material damage for the IT exposure remains a topic.” D&O for financial companies and medical liability are also areas of concern for buyers. So too are employee benefits. But in general the insurance market remains a good place for buyers despite aggravating factors such as the eurozone crisis. “Credit risks have become a predominant factor as the crisis in southern Europe has caused many businesses to struggle,” Mr Rondard said. “However, the credit insurance market is relatively well developed in France and continues to answer to the needs of clients. Of course businesses that have a higher exposure to markets in southern Europe need stronger support to find capacity for their credit risks in that region. But it is still possible to find.” In general, underwriters are more focused on maintaining their current client base rather than trying to raise prices, said the experts. “Competition is really fierce and we’ve had to defend our book of clients,” Ms Charon said. “However, Zurich is not a low cost provider and we prefer much more to offer additional services and coverages rather than lower prices.” She added: “We have become more selective in lines such as property, where in addition to retaining our clients, we try to pick and choose the new business that we bring in. Market conditions are not attractive enough to accept clients in property with whom we could not engage in a long-term relationship.” Barring a huge market loss, insurers and brokers do not see the current scenario changing in the near term. However, other factors could cause some movement in the market, according to Mr Van Santen. “Some insurers have had their ratings downgraded. A big player in the French market disappeared last year,” he said. “If we see big companies are getting in trouble, or some downgrading in the market, we might have a stabilisation of the market, with rates going up a little.” Swiss Re’s Mr Mostermans added: “The financial situation of carriers still remains a topic of concern and changes in financial ratings could also have an impact on the capacity available, especially on the co-reinsurance aspect for international programmes.”

LTAs in vogue as market remains soft

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