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Hard market? Not so fast.


January 16, 2019   by Jason Contant


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The Canadian insurance industry is not at the beginning of a hard market, says Phil Cook, a P&C industry consultant and CEO of Omega Insurance Holdings.

“There are some commentators out there that will say we are at the beginning of a hard market; it’s going to turn now,” said Cook, speaking Wednesday at the Insurance Institute of Canada’s Industry Trends & Predictions: 2019 event in downtown Toronto. However, there are none of some of the attributes that suggest the industry is entering such a phase.

“All hard markets in the past have been categorized by a shortage of capital and a shortage of capacity. We have neither – there’s still a lot of capital, there’s still a lot of capacity,” Cook said during part of his presentation about Top 10 predictions for 2019.

Hard markets also usually follow two to three years of negative results. While 2018 was negative, it was only by a small amount.

“It’s also usually categorized by no new entrants to the business, which again is not correct in our situation,” Cook said. “There are new entrants into the Canadian market, but more importantly, there’s a lot of new capital going into the ILS [insurance-linked securities] market because they still see a significant opportunity for excess cat protections.”

While he doesn’t believe the industry is at the beginning of a hard market, Cook does predict there will be some isolated premium corrections. “We are already seeing some corrections in the D&O [directors and officers] market and we’ve already seen some fairly significant corrections in the aviation market, but the regular P&C market has not really been affected yet. So I would categorize the changes we are seeing as corrections. They are not heralding the beginning of a new hard market.”

Cook’s other predictions for 2019 (and beyond):

  • Reinsurance costs will remain comparatively low – The renewal season for Jan. 1 of 2019 did not generate a “whole lot of increases,” Cook says
  • Further expansion of the ILS market – There will probably not be significant rate increases in reinsurance. The retrocessional market, where reinsurers buy their protection, will likely get more expensive, “but it probably won’t filter back to the primary companies,” Cook says
  • More protectionist legislation – Driven by the United States, but for a short duration. It will be harder for clients to do business across the border, making it harder to follow them with insurance products
  • The “band” around insurer average results will continue to expand – The Top 20-25 insurance companies are now likely to have a spread of 15 points from the average in terms of overall results. “You’ve got some making significantly more [and some less] than the average,” Cook says. “That in itself is disruptive to the industry. We’re far better off when we got a large portion of our underwriting capacity within five points of the average”
  • Some movement in joint ventures between insurers – An option to increase capacity. There may even be a return to a more subscription-type policy
  • Insurers and (intentional) disruptors will find ways to work together – that’s already starting to happen. “Accidental” disruptors are a bigger threat to the industry
  • Capital will continue to follow opportunity
  • More focus on mitigating the impacts of cat disruptions – Insurers will interact more closely with the ILS market to the detriment of traditional reinsurers, causing instability for a while.

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11 Comments » for Hard market? Not so fast.
  1. Jen says:

    “regular P&C market has not really been affected yet. “

    He must be referring to personal lines property b/c any type of auto risk & property commercial lines in the last year and a half certainly do not fit within that description.

    Is the current mid market reluctantance to write or renew any type of residential realty or hospitality risk not on his radar? Books with solid underwriting/ risk analysis that are still performing poorly and will be hard pressed to see a loss ratio under 120% again?

    Rate increases of 30-50% just to be able to justify retaining?And we’re getting those increases by the way. Prices that were unheard of 2 years ago are the norm now as it’s not just one or two carriers suffering- it’s ALL of them.

    Risks insured for years with the same carrier, more then enough premium to cover the claims frequency they’re expected to have being dropped like rocks in premature fear that one year that ratio could upend and cause the entire book to go under all b/c it’s hovering close to?

    Lloyds recent decision to withdraw a significant amount of capacity from the Canadian market has thrown in added chaos. We’re seeing 15% participation on a simple townhouse complex for a mere limit of 2-5 million being farmed out to 8 diff subscribers.

    Brokers at a loss on who to turn to or how to explain to a client that there’s simply no market for their property or business anymore.

    Yup, doesn’t sound like a hard market at all.

    • Jo says:

      Mr. Cook is completely out to lunch and obviously has not been paying attention to what is actually happening. Why does this guy get so much airtime??

  2. Mike says:

    I have to agree with Jen. The market is indeed seeing capacity fleeing and rates rising. The term ‘hardening’ should be more aptly called ‘normalizing’ because the former implies something sinister or anti-competitive is taking place whereas the move to get the right rate for the risk is (or should be) deemed as ‘normal’.

  3. Sue says:

    I think a “hard market” needs to be defined by whether you are the insurance company dumping risks and raising rates (not so hard) or by the brokers and consumers standpoint on scrambling to obtain coverage at a reasonable rates in reaction to to the restrictions and rising costs. From my standpoint it certainly feels like a hard market.

  4. J says:

    What a bunch of rubbish.

  5. Rob says:

    I disagree with the author. We’re at the early phases of the hard market for sure IMO. This hard market cycle will be like nothing we have seen in the past 20+ years. The writing is all over the wall. Underwriting actions that we are seeing insurers take are mind blowing, never before seen. Some of you have it right, we’re seeing customers, no claims, no payment issues, multi-line, with insurer for 30 years, have to jump through hurdles to get a policy if they’re lucky! If you have non-payment, GOOD LUCK! The answer is “we don’t want it”.

  6. H says:

    Agreed, commercial property market is hardening, rates up and larger capacities going for the most part. If you work for an insurance company you know where the market is heading; brokers are trying to spin a different story. I feel like brokers are trying to scare insurance companies into keeping increases low by telling them its a transitioning market and not hard (yet), but profitability has been tough in the past few years on commercial property so rates are going up! If you tell enough people and spread enough fear they are hoping to minimize the impact of the market. Lets not fall for it!

  7. Christina says:

    I completely disagree with these predictions. Hard market yes it is! We are seeing significant rate increases across all lines of business personal to commercial.

  8. Meg says:

    I think you all need to re-read the entire article and actually understand it.

    • jen says:

      Why don’t you explain what you think we’re missing in the article re Phil Cook not having the opinion of Canada not currently being in a hard market for it’s standard P & C lines?

  9. Nick says:

    Clearly this guy isn’t selling or managing accounts. It’s a hard market is nearly all areas of the insurance business currently.

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