UK buyers enjoy stubbornly soft commercial rates but motor climbing

The exception to this is motor fleet that, on the back of losses for insurers and reinsurers caused primarily by claims inflation, has seen rates push northwards by around 5% to 10%, market observers told Commercial Risk Europe. All observers expected the current market conditions to continue for the foreseeable future with no sign of it hardening on the back of recent events. “A word that best describes the market is benign,” said Paul Hopkin, Technical Director at Airmic. “The market in overall terms has plenty of capacity, good coverage and rates are flat through to a slight decrease.” Mr Hopkin said that Airmic members had reported rate decreases of around 5% or 10% to flat for both property and liability lines at the most recent renewals. A figure broadly in line with brokers’ and insurers’ figures.hide“UK property rates were generally flat to negative, however, we are aware of accounts in the market with double digit rate reductions,” Donal Kelly, Regional Operating Officer, UK, Ireland and Bermuda for XL Insurance, explained. “Casualty rates were roughly flat with the conditions broadly stable. We again saw some aggressive pricing in the market with rate decreases in excess of 20%, which in our view is unsustainable.” For the SME market rate reductions are also obtainable but insurers are increasingly trying to push them up, said Paul Maynard, Chief Placement Officer for Willis UK and Ireland. “Broadly most insurers will claim that for the SME sector, around £10–15m turnover and below, they are getting rate increases of about 4–5%, but what they tend to be a bit coy about is retention rates. Generally if a client decides to put the risk out to tender, as a minimum they will get flat rates and often reductions of 15% or more. But insurers are trying to push rates through,” he noted. Motor fleet however bucks the overall trend as insurers, with loss ratios of over 100% driven by claims inflation, attempt to balance the books. “Motor fleet is where insurers are feeling the most pain at the moment and it tends to be renewals plus...so plus 5% to plus 10% and it is all driven by claims inflation,” said Mr Maynard. Experts cited a combination of increased bodily injury claims and costs, increasing repair costs and fraud, such as claims farming, as reasons for increased claims. They also noted that likely changes to the discount rate used in the high court to calculate major serious injury claims could have a further escalating impact. Other lines that display variances from the general picture at renewals include, on the casualty side, elements of the oil and gas industry that bought higher limits and rates increased, said Mr Kelly of XL. The solicitors’ PI market has also hardened, noted Jason Harris, Commercial Lines Manager for UK and Ireland at Chartis. “Where the market has seen worsening losses coupled with strong criticism of the Assigned Risks Pool (ARP),” he explained. The ARP is funded by insurers that participate in the sector and provides cover for solicitor firms that cannot obtain cover from qualifying insurers or cannot reasonably afford the terms available to them because they are deemed to be too risky. One criticism levelled against the ARP is that it does not provide incentives for solicitors to deal with the small number of poorly run firms themselves by transferring costs of the pool more explicitly to the profession. As such, some argue, the costs are overly burdensome on insurers that pay into the scheme. For the insurance market as a whole similar terms and conditions are expected at upcoming renewals and a hardening remains some way off, experts agreed. “Everyone seems to believe that we have at least another 18 months, maybe longer, and the thing that is going to eventually turn the market is death by a thousand cuts,” said Mr Maynard of Willis. “We have already tried every form of event, from the collapse of the world’s financial system to the Chilean earthquake, and they have not been enough,” he added. Mr Maynard also pointed to falling premium volume figures as a reason that could continue to prevent a hardening of the market. “I have compiled some data which shows that total commercial premium volume in 2009 was down 10% on 2008, based on ABI [Association of British Insurers] numbers. I would not be at all surprised if total volume falls in 2010 because of reduced activity. One paradox is that as the market shrinks it increases the pressure on all the players to maintain their positions, which just makes it more competitive,” he explained. Airmic members also do not expect the market to turn any time soon, unless really dramatic events occur, said Mr Hopkin. “From the risk managers’ point of view they do not see events that have occurred in the recent past are of such a magnitude, or that the sentiment in the market is such, that we expect it to turn...We understand that insurers should not be strangled to death and that they need to make a profit but the current feeling is that from recent history the industry is not about to be,” he explained. Capacity in the market remains plentiful and it still attracts fresh capital, which is expected to further increase competition amongst sellers. “There continues to be plenty of capacity in the market and we anticipate that 2011 will be a tougher year than 2010,” said Chartis’ Mr Harris. “The middle market is attracting a great deal of interest,” one market source said. “AXA has big ambitions for the middle and upper middle market, those companies of up to £500m turnover and even beyond. Aviva’s big entrance into the major accounts market is well known. And there are plenty of other insurers who are really keen to defend their position or are entering the fray. It is a very competitive market,” they added. The recent renewal period witnessed more discussions over solutions to non-damage business interruption and cyber risk, even though actual products are yet to emerge, said Mr Hopkin. These discussions are encouraged by Airmic. The Icelandic ash cloud, which disrupted the transportation of stock and supplies, highlighted that business interruption policies will not pay out unless there is physical damage to property. “That has reinforced and enhanced the debate about insureds that want a non-damage business interruption supply chain type of insurance,” said Mr Hopkin. “Also there has been much more talk about cyber risk particularly as, last year, the government told us it was the biggest risk that the country faces. So whilst there are not too many new products they are both areas in which Airmic would like insurers to be more innovative, so we are supporting those discussions and hope new products will start to emerge.” January 1 UK property catastrophe reinsurance renewals also saw prices soften because of excess capacity, reinsurance brokers have said. According to Aon Benfield prices on January 1 fell by 5–10% on a risk adjusted basis. Additional cover has been bought by insurers to reflect rising exposures while retention levels have reduced on a relative basis, said the broker. Aon said that excess capacity is still evident in the UK and Irish market and it expects the trend to continue this year. “Original rates for personal lines property business have hardened slightly. Commercial lines remain competitive,” commented the broker. Guy Carpenter reported that UK property catastrophe reinsurance rates continued to ‘favour’ cedents, with rate on line down 5–10% year on year. The reinsurance broker also reported that per risk programmes were off 5–15% for working layers and high-risk excess programmes, compared to the year before. Willis Re agreed that prices continued to soften in the UK property market as capacity remained ‘plentiful’ with several new entrants, particularly in the Lloyd’s market. The broker said that retentions and limits bought were ‘broadly stable’ and that there was some ‘increased appetite’ for aggregate excess of loss covers among some reinsurance buyers.

UK buyers enjoy stubbornly soft commercial rates but motor climbing

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