Capacity is high and prices remain soft, says broker

In its newly published Lockton Market Update, Lockton says that most markets continue to be stable, and prices are soft and capacity high. In addition, confidence appears to be returning to the business world, albeit cautiously. Companies with strong financials, good loss histories and well-documented risk management procedures should benefit from the current market conditions.

Despite this good news, the recent earthquakes in Chile and Haiti and the recent wind storms in Europe are a reminder of the devastating affect that natural catastrophes can have. With the full impact of the Chilean earthquake yet to be fully felt by the market and on-going uncertainty in the financial markets, the benign market conditions could change as 2010 progresses.

The online update includes snapshots of over two dozen markets with the latest trends facing risk managers, chief financial officers and other executives.

Highlights from the report include:

• Product Recall -- Ian Harrison from Lockton’s Global Casualty team observes: “There is an increase in both supply and demand for recall cover, demonstrating the healthily state of the market. We now have potentially eight lead markets, primarily based in London, all with alternative wordings, response consultants, and different industry specialisations, providing a level of choise and competition not seen before for primary risks. On an excess basis, capacity remains available allowing programmes of $200,000,000 plus to be placed for catastrophic exposures if required.”

• Professional Indemnity -- Steve Holland, Executive Director of Lockton’s Risks Solutions team comments: “Despite a challenging environment, market rates remained relatively stable, particularly for those firms able to demonstrate good risk management and better than-average claims experience. Be that as it may, the U.K. PI market continues to trade through a particularly challenging period. Many professions are experiencing intense competition, and the recession has decreased company fee income and increased claims frequency. On this basis, the U.K. PI market is facing mounting losses and will remain challenging for insurers for some years to come.”

• International property -- Brendan Scofield, Regional MD of Lockton’s Global Property team says: “For clients with very small critical catastrophe exposures, rates are reducing by a significant amount, as underwriters are looking to grow their portfolio and maintain income. However, large global placements provide a different challenge, as there are very few insurers capable of issuing paper in multiple territories. Overall the global property market is soft with plenty of capacity, but the recent earthquakes have reminded us of the power of nature to undermine the best laid plans of individuals and corporations.”

• Reinsurance – “Reinsurers have maintained pricing discipline through the January and April renewals. Where we go from here depends essentially on how long this discipline will last in the absence of marketing-changing claims activity. Certainly, the current market is soft, but do not count on it getting softer. The roller coaster may just be gearing up for its next ascent.” Commented Stephen Hitchcock, Managing Director, Lockton Re.