The relatively soft insurance market for large European corporate buyers is unlikely to change significantly in 2014, according to brokers and insurers interviewed by CRE. The influx of new capacity and broker facilities could put rates under further pressure for good risks at upcoming renewals.
As a result of the soft and competitive market, risk managers can expect insurers to focus more on service and data in the coming year.
The prospect of another year of poor investment returns has kept underwriters’ minds focused firmly on underwriting discipline. But new capacity has been attracted to the insurance market from a number of sources—capital market investors, portfolio businesses such as the Aon Berkshire Hathaway facility at Lloyd’s and insurers in emerging markets, including the Middle East and China. This has ramped up competition for corporate risks and curtailed insurers’ desire for rates increases.
Heading into 2014 and key renewals, conditions are favourable for buyers, said Ken MacDonald of insurance broker Miller. “The more capital entering the industry will inevitably support this continuing. There is a wall of cash looking for a home", he said.
“Overall the market is soft to softening with plenty of capacity", said Emmanuel Brulé, President of Commercial Insurance, Europe, Middle East and Africa at AIG. Although recent renewals have seen slight increases for some cat exposed property business and upward trends in primary casualty, he added.
“Competition remains fierce and we don’t see that changing any time soon”, said Jeff Moghrabi, Regional President for Continental Europe at ACE Group. “Slim margins for insurers means that, in general, they are now less able or willing to cross-subsidise between different lines of business", he said.
The soft market also means that multinational insurance carriers are looking more tactically at their larger customers, developing client management capabilities and looking to cross sell, said Mr Beresford-Davies. “Everyone is looking to leverage and gain market share,” he said, noting insurers’ increased interest in offering excess capacity.
Insurers have looked to leverage the market in 2013 through broker facilities that enable intermediaries to offer insurer-backed capacity in subscription markets like Lloyd’s.
The influx of third party capital and the creation of ‘follow the market facilities’ by the large brokers could increase the trend towards commoditisation within the insurance industry, warned Mr MacDonald.
Potentially, broker facilities are an efficient way of offering additional capacity in markets such as Lloyd’s. But, given the soft market conditions, broker facilities are often in direct competition with insurers on subscription business, reducing the pool of premium available and putting pressure on rates.
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