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Property Catastrophe Insights

Keep reading for essential info on program conceptualization, marketing, placing and servicing programs.

State of the Market Spring 2014: Get ready for a softer market

Samantha Kimball Samantha Kimball , 4/12/2014
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Get ready to share some good news with your customers. As we discuss in our Spring 2014 State of the Market: Property Catastrophe Insights report, we’re entering a softer, more competitive phase of the insurance market, so insurers are reducing pricing for most accounts.

Why now? As always with the insurance market, the answer to that question is multi-faceted, but in short: 2013 was a good year for property-casualty insurers and the market began 2014 with ample capital. In 2013, policyholder surplus was up 11.8 percent to $670 billion.

At about $31 billion, 2013 global catastrophe losses were well below the 10-year average. Unlike 2012’s Superstorm Sandy, there was no single large loss event to affect pricing. In fact, the US had the quietest hurricane season since 1982. As a result of the sharply lower losses, the market reported much higher profits in 2013.

At the same time, the market was infused with about $50 billion in new capital from non-traditional sources, such as catastrophe bonds. Catastrophe bonds are being used in new ways to get around market resistance, as was the case with the New York Metro Transit Authority. After Sandy, they were unable to obtain insurance for storm surges from the traditional market and instead obtained $200 million worth of catastrophe bond protection.

Though the RMS 11.0 catastrophe model dramatically increased loss estimates when it was introduced in 2011, the latest update (RMS 13.0) has reduced some of the loss estimates. This, too, contributes to softer market conditions.

These, and other developments you can read about in the full State of the Market report, may begin to disrupt old business models, forcing insurers to rethink products and pricing. In our next post, we’ll discuss what’s ahead for the property catastrophe insurance market and how brokers should respond.