U.S. Property Rates Soften
By Lisa S. Howard
International Editor
Chicago
After rising by 62 percent last year, U.S. property rates have begun a moderating trend, according to a report published by Aon.
"The runaway hard market has finally jarred to a halt as insurers find that, to meet their income targets, they are having to compromise on rates to achieve the levels of premium that their business plans demand," said the Aon report entitled "2003 U.S. Property Report."
"Favorable, though modest, changes in terms and conditions are likewise negotiable as existing carriers struggle to balance the desire for a higher return on capital with the need to meet income targets," the report continued.
U.S. property is benefiting "from an influx of new capacity, which is competing for business, and, for some clients, bringing rates down," said John Turner, chairman of Aon’s U.K. Global Risks division, in a statement. Mr. Turner works in the company’s London office.
To redress systemic underpricing of risk since the end of the last hard market in 1986, it has been estimated that premiums need to rise by 66 percent from their level in 2000, the report said.
"But with the pressure now on for premium growth in a market that is attracting new capacity keen to share the higher rates, strong underwriting discipline will be needed to maintain an even keel, let alone achieve such a target," the Aon report said.
"So far, [the rate softening has] been a moderating trend; it’s not been dramatic," said Gary Marchitello, managing director of Aon’s National Property Syndication Group in Chicago, during a press briefing to announce the report’s findings at this year's Risk and Insurance Management Society conference.
He predicted that property rates would continue dropping by 5-to-10 percent per quarter during 2003, but he didn’t expect that rates would return this year to the levels seen during the depths of the soft market.
Aon said that while "evidence is emerging that the market is on the brink of a downward cycle," management discipline and factors such as rating downgrades may be holding it up. The study cited an informal survey of the U.S. property insurance industry finding, however, that buyers are still focused on price as a paramount concern.
Separately, preliminary results from RIMS Benchmark Survey were also released at last week’s RIMS meeting, indicating that, in addition to property, excess casualty prices appear to be softening. The Benchmark Study also found, however, that directors and officers and fiduciary coverage continues to be expensive and difficult to find.
Additional reporting by Caroline McDonald.
Reproduced from National Underwriter Edition, April 14, 2003. Copyright © 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.
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