International broker Jardine Lloyd Thompson says commercial clients should prepare themselves for further increases in liability rates this year as insurers continue to repair balancesheets and shy away from long-tail exposures. In its annual “state of the market” report, JLT says that lines such as directors’ and officers’ (D&O), medical malpractice, employment and products liability will specifically feel the heat. And, specific “problem industries” such as conglomerates, pharmaceuticals and railways have already bee targeted by insurers through 2003. On the other hand, property prices leveled off and even dropped in some cases in 2003, as did aviation and energy risks, following extremely sharp increases after 9/11. The market is one of “fragile stability”, with recovery coming on the back of price increases, and insurers unwilling to give up the ground they have made in restoring the massive capital lost prior to 2002. “Despite the reductions for some rates in 2003 and the emergence of fresh capacity, we believe that, overall, the hard market will continue to sustain itself in 2004,” concludes Steve McGill, CEO of JLT. “Therefore many of the signs of the hard market will continue to exist albeit with pressures to diminish.” He predicts insurers will be tempted to move into the liability lines, however, to take advantage of continued hard pricing and low capacity. Other tends shaping the industry moving forward include the strong performance of new Bermuda players, and increased attention to insurance issues at the corporate board level. The Bermuda market posted a combined ratio of 97.1% in 2002, and that year a record 462 new captives were formed, offering commercial buyers new options for risk transfer. The insurance market will continue to face challenges, specifically those related to long-tail exposures such as asbestos, and some companies remain vulnerable should a series of significant catastrophe losses be experienced. The broker does not anticipate active consolidation amongst insurers, but says the brokerage community could see more mergers and acquisitions in 2004.