HARD MARKET
WHY INSURERS ARE NOT CALLING IT A
HARD MARKET
BY: GREG MECKBACH OF CANADA UNDERWRITERS
Y
our clients may be paying
higher rates but hard market
may not be the right way
to describe it, speakers
suggested at a recent
insurance conference.
“I don’t personally know if I would call it
a hard market yet. What I would call it is
pricing coming back up to something that
is a long-term sustainable level,” Monica
Ningen, CEO of Swiss Re Canada and
English Caribbean, said during a media
briefing after Swiss Re’s Canadian Annual
Outlook Breakfast.
Speakers at this year’s breakfast included
Don Forgeron, CEO of the Insurance
Bureau of Canada.
“The last hard market we had for
commercial was 2002. That’s the last
time when prices shot up that it got the
attention of policymakers and bar owners
and small business owners,” Forgeron
told journalists after the breakfast
presentations at One King West in
Toronto.
“I don’t know that you are going to
see those swings from a soft to a hard
market,” said Forgeron. “I think we are
going to have to come up with another
word to describe the world that we are
in now, which is perhaps a more realistic
market, where companies are taking a look
at each line of business and doing what they
need to do.”
Prices are rising for a variety of reasons,
including an increase in weather-related
claims and auto insurance claims, Forgeron
noted. Low interest rates are “not helping,”
because unlike 20 years ago, insurance
companies cannot offset underwriting
losses with earnings from interest-bearing
investments.
In Canada, the overnight interest rate –
currently 1.75 percent – was more than 4
percent in 2007, 13 percent in 1990 and 21
percent in 1981.
“There is ample capacity in the market,”
Ningen said.
Commenting on primary insurers in general,
Ningen suggested that what was different
in the past was that carriers could often use
profits from a profitable line of business to
offset losses from a poor-performing line of
business,
“We are now in a time period in the
industry where you see some lines of
business under-performing – losses
are high – and there is not any lines of
business that are awesomely performing
that offset it. So you are starting to see
boards of directors and investors getting a
little more restless than in the past because
of that total balance sheet view. I think
that has resulted in some of the lines of
business that have been significantly under
priced starting to see pressure on those
prices. You have also seen some capacity
pulled out of the market – Lloyds of
London for example.”
Last year, the Corporation of Lloyd’s asked
its syndicates to conduct in-depth reviews
of the worst performing 10% of their
portfolios, along with all loss-making lines,
and submit their relevant remediation
plans for approval as part of the 2019
business planning process.
When it released its 2018 financials on
March 27, the Corporation of Lloyd’s said
eight syndicates stopped trading as of Dec.
31. Those eight wrote a combined total
of £1.5 billion in gross written premiums
in 2018. The pound is trading at about
$1.74. +
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