Overcapacity leads to premium rate reductions of as much as 30% in some markets: Willis

Benign loss activity and softening conditions in the global reinsurance market are contributing to overcapacity in the international construction, property and casualty markets during the first half of 2014 that has resulted in rate reductions of as much as 30% for commercial insurance buyers, finds a new report issued Wednesday by Willis Group Holdings.

The reduction “is primarily driven by benign loss activity and softening conditions in the global reinsurance market, which is having a trickledown effect to the primary insurance market,” global risk adviser, insurance and reinsurance broker Willis Group Holdings notes in its Q3 2014 Construction, Property & Casualty Market Review.

Capacity is at an all-time high, Willis reports, pointing out there have been no withdrawals of capacity from the construction market in the last six months. “Over and above rate reductions, corporate insurance buyers are also benefiting from an increase in available natural catastrophe capacity,” notes a Willis statement.

The report found that in the general property market, premium rates are continuing to decrease by between 10% and 15% on claims free business. Even larger reductions are available for buyers who can clearly demonstrate robust risk management practices and detailed risk information, Willis adds.

“Our view is that soft market conditions are likely to continue without necessarily threatening the profitability and solvency of carriers, provided that they actively manage their portfolios,” says James Nicholson, head of broking and industry practice groups for construction, property and casualty at Willis, commenting on the report’s findings.

“For their part, corporate insurance buyers can achieve substantially better than average pricing through the provision of good underwriting data, the use of analytics to drive pricing and through strong relationships with carriers. The outlook, therefore, remains very favourable for corporate buyers and more particularly for the well-informed,” Nicholson adds.

The international property and casualty insurance market continues to witness an influx of capital, Willis notes in the statement. Provided that detailed risk information is available, carriers are prepared to offer insurance buyers improved coverage, particularly improved contingent business interruption extensions.