HARD MARKET - NOT SO FAST
HARD MARKET?
N OT S O FA S T
BY: JASON CONTANT OF CANADA UNDERWRITERS
T
he Canadian insurance industry
is not at the beginning of a
hard market, says Phil Cook, a
P&C [Property and Casualty]
industry consultant and CEO of
Omega Insurance Holdings.
“There are some commentators out there
that will say we are at the beginning of a
hard market; it’s going to turn now,” said
Cook, speaking at the Insurance Institute
of Canada’s Industry Trends & Predictions:
2019 event in downtown Toronto. However,
there are none of some of the attributes
that suggest the industry is entering such
a phase.
“All hard markets in the past have been
categorized by a shortage of capital and
a shortage of capacity. We have neither –
there’s still a lot of capital, there’s still a lot
of capacity,” Cook said during part of his
presentation about Top 10 predictions for
2019.
Hard markets also usually follow two to
three years of negative results. While 2018
was negative, it was only by a small amount.
“It’s also usually categorized by no new
entrants to the business, which again is not
correct in our situation,” Cook said. “There
are new entrants into the Canadian market,
but more importantly, there’s a lot of new
capital going into the ILS [Insurance-
Linked Securities] market because they still
see a significant opportunity for excess cat
protections.”
While he doesn’t believe the industry is at
the beginning of a hard market, Cook does
predict there will be some isolated premium
corrections. “We are already seeing some
corrections in the D&O [Directors and
Officers] market and we’ve already seen
some fairly significant corrections in the
aviation market, but the regular P&C
market has not really been affected yet. So I
would categorize the changes we are seeing
as corrections. They are not heralding the
beginning of a new hard market.”
COOK’S OTHER PREDICTIONS FOR 2019
(AND BEYOND):
• Reinsurance costs will remain
comparatively low – The renewal season for
Jan. 1 of 2019 did not generate a “whole lot
of increases,” Cook says
• Further expansion of the ILS market –
There will probably not be significant rate
increases in reinsurance. The retrocessional
market, where reinsurers buy their
protection, will likely get more expensive,
“but it probably won’t filter back to the
primary companies,” Cook says
• More protectionist legislation – Driven by
the United States, but for a short duration.
It will be harder for clients to do business
across the border, making it harder to
follow them with insurance products
• The “band” around insurer average results
will continue to expand – The Top 20-25
insurance companies are now likely to have
a spread of 15 points from the average in
terms of overall results. “You’ve got some
making significantly more [and some less]
than the average,” Cook says. “That in
itself is disruptive to the industry. We’re
far better off when we have portion of our
underwriting capacity within five points of
the average”
• Some movement in joint ventures between
insurers – An option to increase capacity.
There may even be a return to a more
subscription-type policy
• Insurers and (intentional) disruptors will
find ways to work together – that’s already
starting to happen. “Accidental” disruptors
are a bigger threat to the industry
• Capital will continue to follow
opportunity
• More focus on mitigating the impacts
of cat disruptions – Insurers will interact
more closely with the ILS market to the
detriment of traditional reinsurers, causing
instability for a while.
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