From the December/January 2012 issue of Treasury & Risk magazine

Soft Market Ends

Insurance costs are finally heading higher, but experts say the increases will be moderate.

Companies have enjoyed a soft insurance market for years, but that’s coming to an end. Premiums started to rise recently, and that trend is expected to continue this year. U.S. insurers remain well-capitalized, though, so the cost increases should be moderate. The change is driven partly by the losses insurers suffered last year, particularly those related to the many weather catastrophes, as well as diminished returns on insurers’ investments. While last year’s insured losses totaled $70 billion to $80 billion, many of the most costly events, like Japan’s earthquake and tsunami and the floods in Thailand, were felt more by overseas insurers than those in the U.S. Still, the industry-wide combined loss ratio has risen to 109, which means insurers are losing nine cents for every dollar of premium they write, says Dave Bradford, president of Advisen’s research & editorial division.

And the low interest-rate environment means insurers aren’t getting a lift from their investment returns. “It’s just encouraging underwriters to push for higher rates.” Bradford says, but “it’s still an enormously overcapitalized market, so there’s still a question of whether the rate increases will stick.”


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