With property/casualty rates in the U.S. still faltering, questions about cyclicality of the market are to be expected.
Indeed, a new report from Dallas-based MarketScout notes that despite some moderation in the past year, the soft market has persisted for five years.
“Since February 2005, rates have been cut in all areas regardless of how the data is measured,” says Richard Kerr, founder and CEO of MarketScout. “It doesn’t matter if you measure by line of coverage, industry group or the size of account; insureds have enjoyed a rate reduction every month with the exception of a month here and there for D&O coverage. Agents, brokers and insurers need to realize this pricing environment may be around for several more years. Absent a major catastrophe or reduction in capacity, the current rating environment may be the new normal.”
Kerr said that while a major catastrophe in excess of $100 billion would have the most immediate impact on the market, other scenarios bear consideration.
“Another factor that could ultimately increase rates is the lack of return capital providers have seen in their U.S. insurance portfolios,” he says. “Also, investments in some startup companies have not gone as well as expected. As a result, fewer capital providers are willing to back startup insurers. Less capital for startup insurers could impact the market and ultimately support rate increases as the supply channel constricts.”
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Corrected November 9, 2010 at 3:02PM: yes