Lockton Update Sees a Hardening Market
In a report by insurance brokerage Lockton's Fall 2008 Market Update, insurers now face an ominous set of facts as the industry enters the final months of 2008, changing market conditions.
According to the report, the financial signals that once pointed to a continued soft market now point to changing dynamics and the potential for pricing pressure. It is not clear that prices will harden in the immediate future, but the financial facts about the property casualty insurance market indicate the pressures are looming.
In the first half of 2008, insurer profits declined 57 percent, the industry posted its worst first-half year underwriting performance since 2002, investment returns declined by 18 percent and net written premiums for the industry as a whole were stagnant. Catastrophe losses were double the average of the past decade. Furthermore, this does not account for the losses from Hurricane Ike and other storms in the third quarter.
The industry combined ratio deteriorated from to 102.2 percent in the first half of 2008 from 92.7 in the same period a year earlier. According to Lockton, it is certain that this closely watched number will deteriorate further in the second half of the year given the losses from hurricanes and other increasing losses.
What's Next
Industry insurance capacity remains near record highs, so there is plenty of capital. The industry as a whole is stable, profitable and capable of meeting its claims commitments and taking on new business, says the report. At the same time, with investment returns dropping sharply, and no change in the expected losses insurers face, it is clear that underwriting margins are going to have to pick up the slack. In other words, a return to a more disciplined commercial pricing environment seems inevitable.
Altogether, declining profits, deteriorating underwriting results, shrinking capacity, the credit market challenges, a slowing economy and specific problems at some insurers are creating a volatile mix of issues that could pressure insurance prices in the coming weeks and months.
To obtain free copies of Market Update, visit www.lockton.com.
About Lockton
Lockton is the world’s largest, privately owned, independent insurance broker. With more than 3,825 associates, Lockton delivers service to companies of all sizes as well as to individual clients. The company was founded by Jack Lockton in Kansas City, Missouri, USA in 1966. Since that time, Lockton has grown to become the 10th largest insurance brokerage firm in the world.
Published on November 18, 2008
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