Competition forces mid-year rate declines in Australia
An abundance of reinsurance capacity and intense competition led to further rate declines in the Australian market at the mid-year renewals, according to a report by Marsh.
The broker’s insurance market mid-year update report said that soft market dynamics continue to be driven by an abundance of capacity in the reinsurance market while competition among direct insurers has become more pronounced.
This has meant that reinsurance treaty pricing for most lines of business continued to decline in the June/July renewal period as excess capital chased reduced demand.
In addition to sustained competition around pricing, there has also been a broadening in policy coverages. Insurers are offering multi-year agreements and, as is typical in soft market cycles, multi-line packaged deals have been negotiated.
“While the current market dynamics remain in favour of the insurance buyer, the Australian market remains buoyant. This was evidenced in a recent announcement by the Australian Prudential Regulation Authority of a A$4.7 billion profit for reinsurers and improved capital/coverage ratios in the 12-month period to March 2014,” the report said.
In the property sector specifically, a record level of capital in the reinsurance markets in 2014 has increased existing competitive pressures in the property insurance market to unprecedented levels, and most insurers are striving to gain market share and boost premium income, the report said.
“Clients are experiencing record low rates and there appears no end in sight to this highly-charged competitive environment.
“Intense competition between insurers has been evident throughout the June/July renewal period. This has delivered improved policy conditions and deductibles, while driving rates lower for clients across most segments. Insurers continue to relax conditions surrounding natural catastrophe sub-limits and deductibles for both local and international assets.”
It said there were rate reductions varied across the Marsh portfolio, with small and medium enterprises (SME) clients experiencing reductions in the range of 7.5 percent to 15 percent. Corporate clients and major risk management clients generally enjoyed larger reductions, particularly those considered low risk and with positive claims histories.
It added that to some extent, clients’ recent experience of rate reductions influenced the level insurers were willing to offer in 2014.
The more hazardous industries such as mining, utilities, and energy also experienced an improved market environment. However, this was not the case for clients in these industries with adverse loss histories. Several insurers relaxed their underwriting guidelines for these industries while others re-entered the market for these risks.
