Buyer-friendly market conditions to continue for remainder of 2015: Willis Group

Willis Group Holdings plc, a global risk advisor insurance and reinsurance broker, expects property and casualty insurance buyers to experience largely buyer-friendly market conditions on most business lines for the remainder of the year, due in part to light cat losses and a robust supply of capital from traditional and non-traditional sources, the company said in its 2015 Marketplace Realities Spring Update, published on Wednesday.

“Individual experiences will vary depending on industry, geography and loss history, but overall we anticipate a marketplace that continues to offer opportunities for buyers,” said Matt Keeping, chief broking officer, with Willis North America, in a statement. “With weather and other catastrophic losses remaining below average for another year, and capital hungry for a somewhat predictable return, we see the forces of supply and demand working as expected.”

However, evolving threats generated from a range of risks – cyber attacks, political instability in many parts of the globe and the sense of a changing climate – pose risk management challenges for many organizations, Willis said in the statement.

Willis expects commercial property rates to fall by an average of 12.5–15% for both non-catastrophe-exposed and catastrophe-exposed risks, due in part to a market flush with capacity, according to the report. “Insurance carrier appetite for this risk remains strong and with increased carrier capacity, buyers are enjoying ample options in determining where to place their business in 2015,” the statement said. For commercial casualty lines, capacity also remains abundant and Willis expects primary casualty pricing at renewals to be flat.

The most surprising market softening can be seen in aviation programs, “where significant and high-profile cats continue to seize the world’s attention,” the statement noted. “There is still ample capacity in the marketplace and excluding these exceptional losses, the industry’s safety experience remains good.” However, these factors have combined to reverse Willis’ earlier predictions of sharply increased rates for this sector. Insurance buyers can expect renewals to range between flat and +10% for the remainder of 2015. [click image below to enlarge]

There are some exceptions to the broad downward trend and Willis highlights several challenges in the marketplace, particularly for cyber insurance. “With cyber breaches becoming alarmingly common and increasingly severe, the demand for stand-alone cyber policies is dramatically rising,” the statement said, with Willis predicting increases of up to 10% for most buyers.

“However, organizations with point-of-sale (POS) exposures face 10% to 100%+ increases for primary premiums,” the report noted, with additional increases likely in the excess layers of the program, due to paid claim activity. “Underwriters are evaluating retailers and other organizations with POS systems with increased scrutiny. Adding to the upward pressure, some carriers in this space have increased their retentions, reduced their capacity or, in some cases, exited certain sectors.”

Willis also expects rate increases on errors and omissions coverage for organizations with poor loss experience or difficult industry sectors currently at risk for large claims and litigation, such as technology firms. Some environmental insurance programs, particularly combined environmental plus casualty programs, are experiencing sharp increases as environmental claims against organizations continue to trend upward.

In the executive risks lines, buyers will find a mix of modest increases and decreases.

Keeping noted that challenges remain for organizations as risk profiles change. “The threat of cyber-related losses seem to be a matter of not if, but when; the push for global markets is clashing with the realities of political upheaval and war in many places on the planet, making political risks increasingly unavoidable; and even if nat cat losses are down in the aggregate, there is the sense that a changing climate brings an increased potential for widespread catastrophe in heavily populated areas.”