U.S. insurance CEOs worry about pricing, capacity

Property and catastrophe capacity, especially in U.S. areas highly prone to losses, was high on the list of concerns for panelists from the property and casualty (P/C) industry at Standard & Poor’s Ratings Services’ recent annual insurance conference, “Insurance 2006: Rethinking Risk.”
Whether U.S. P/C insurers price risk properly was a chief concern for the panelists. Even though premiums have doubled in the past three to four years, “pricing in primary markets isn’t supporting the cost of reinsurance,” Liberty Mutual Group president and CEO Ted Kelly told his audience.
Reinsurance capacity might still be 20% short of demand in the southeastern U.S., and “problems getting insurance in the Gulf region haven’t been settled yet,” Kelly added.
Martin Sullivan, president and CEO of American International Group Inc., said companies “should look at their enterprise risk management, and what kinds of controls management has on currency and hedging.”
He said he would also like to see construction codes improved in the southeastern United States.
P/C industry pricing, looking forward, is a huge question mark, the panelists said. If the 2006 hurricane season is benign, pricing discipline will remain, especially in the catastrophe areas, Sullivan said.
But Kelly was not so sure. “A pricing bloodbath” could ensue if the hurricane season is moderate, he said. “Watch October renewals: they will be the first sign of a lack of discipline,” he warned.