Catastrophe severity will affect pace of hardening market in 2009: Advisen

The severity of the 2009 catastrophe season is a wild card in determining the speed at which the commercial insurance market will harden this year, says a recent briefing by Advisen, ‘The Insurance Market in 2009: A Market Poised for Change.’
Commercial rates “are likely to bottom out by the end of the year,” Advisen says, “but in the absence of a major catastrophe, it is unlikely there will be material rate increases except in certain distressed segments.”
Advisen notes several factors are conspiring to make the anticipated hard market of 2009-10 much more gradual than the hard market of 2001-03. Among them, “lower demand for insurance coverage, a consequence of the current recession, could prolong soft market conditions,” the Advisen briefing notes.
In property lines, Advisen notes, the current drive of U.S. insurers to seek higher premiums “may prove unsustainable,” because capacity “remains abundant and competition is keen.”
But a large-scale catastrophe could change all of that. “When the market begins to harden, rate increases will occur gradually, not sharply as in 2001-03, unless there are very large catastrophe losses,” the Advisen briefing says.
“If, however, catastrophe losses are mild to moderate, the soft market should bottom out by the end of 2009, and the average commercial lines premium should begin to trend upwards soon after.”
The upcoming hard market is likely to differ from previous ones, Advisen predicts. Rates will increase more gradually, the hard phase of the cycle will likely be of a longer duration and the impact of the hard market will be “muted by the economic recession,” the briefing says.