Property Rates Expected to Rise From Catastrophes, Revised Cat Model

Property insurance rates could be on the rise thanks to first quarter catastrophe losses, including the earthquake and tsunami in Japan, and a revised catastrophe model.

During the second quarter, rates for North American catastrophe-exposed property risks are expected to increase up to 5 percent, while non-catastrophe exposed property risks could still experience rate declines, Willis Group Holdings said in its spring update.

Abundant capacity is helping to keep other commercial lines mostly stable, and first quarter renewals continued to experience soft market conditions. However, additional catastrophe losses could impact pricing in other lines, and the market is in transition as we head into the U.S. Atlantic Hurricane season.

“The property market is shifting, especially for catastrophic risks. The overall marketplace, however, appears to be stable, and while the softening may slow, no major reversals so far are detected. This speaks volumes about the resiliency of our industry,” Todd Jones, president of Willis North America, said in the 2011 Marketplace Realities and Risk Management Solutions report.

Jones warned, however, that should predictions of an active Atlantic hurricane season come true, the market could turn for other lines as well. “This year, a big hit to the world’s carriers could put us over the tipping point,” he said.

Other findings in the Willis report include:

• Property: The Japan earthquake and tsunami, coupled with catastrophe modeling firm Risk Management Solutions’ (RMS) updated hurricane model version 11.0 will most likely bring the soft market to a close and Willis forecasts a stabilization of rates for Q2. RMS 11.0 is producing some dramatic increases in the modeled loss estimates in some tier-two wind zones, up to 100 percent in some cases. Catastrophe exposed property accounts could experience rate increases of 5 percent. Non-catastrophe exposed property risks may be able to continue to find reductions of 5 percent -10 percent.

• Casualty: Primary rates are leveling, though carriers still present ample capacity and appetite for risk. Larger auto fleets may begin to see less favorable auto liability rates. The excess/umbrella casualty liability market is less soft. Carriers are seeking flat renewals or small rate increases on rising exposures.

• Workers’ Compensation: The soft workers’ compensation market is expected to continue into 2011 but flatten by Q4. This year, several states are filing for rate increases including California, Florida and New York. Collateral requirements remain a challenge for most insureds, often preventing buyers from taking full advantage of conditions.

• Directors & Officers: Rate reductions remain common, though more frequently in single digits. Dramatic changes to coverage is creating a new landscape and many enhancements will be a boon to covered directors and officers.

• Employee Benefits: Rates are expected to rise 12 to 14 percent, with 2 to 4 percent of that attributable to coverage changes mandate in health care reform. Given the higher costs that are expected due to health care reform, buyers are seeking more aggressive cost containment strategies.

Source: Willis Group