Presentation on theme: "RIMS SOUTHERN ALBERTA CHAPTER MARKET UPDATE 3 NOVEMBER 2011 Bill Forsyth Calgary."— Presentation transcript:
RIMS SOUTHERN ALBERTA CHAPTER MARKET UPDATE 3 NOVEMBER 2011 Bill Forsyth Calgary
MARSH 1 26 April 2015 The Insurance Market Cycle
MARSH 2 26 April 2015 The Insurance Market Cycle
MARSH 3 26 April 2015 Is it really a cycle? Cycle 1. –Any complete round or series of occurrences that repeats or is repeated. 2. –A round of years or a recurring period of time, especially one in which certain events or phenomena repeat themselves in the same order and at the same intervals.
MARSH 4 26 April 2015 Too many moving pieces… Economy Catastrophes Equity market Interest rates Underwriting results Additional capacity Insurer changes
MARSH 5 26 April 2015 What are the characteristics of a hard market? Premium increases unrelated to loss experience Difficulty in obtaining adequate limits Insurers exiting classes On a consistent basis
MARSH 6 26 April 2015 What is not evidence of a hard market Rate increases on a case by case due to losses Reduction in specific coverages (Nat cat, terrorism) A single subscriber being difficult A specific class becoming difficult (eg frame)
MARSH 7 26 April 2015 Markets for specific coverages can harden independently and quickly… Terrorism Asbestos Pollution US exposures Nat Cat
MARSH 8 26 April 2015 What are we dealing with now? 8 straight years of soft conditions Canadian Insurer’s combined loss ratio at about 101% for the past three years Canadian Insurer’s ROE at about 7% for the past three years Abundant capacity Mature insurance market Unstable equity market
MARSH 9 26 April 2015 ’80s retro… Strathcona General Cardinal United Canada Northumberland Century Advocate General Gone and long forgotten…
MARSH April 2015 A couple mitigating factors CAT losses of 2011 CBI May have some impact on treaty renewals
MARSH April 2015 It’s all relative… Nominal increases and restrictions may appear harsh following the easy ride we have enjoyed Some change will be inevitable Don’t confuse a tough renewal with sweeping market change
MARSH April 2015 The Reinsurance Factor Post Hurricane Andrew, eight new reinsurers valued at $2.9billion Post 9/11, eight more valued at $8.6billion Post Katrina/Rita/Wilma, five more valued at $5billion Oct 28, 2011 – Announcement of SAC Re planned with $500million in capital More capacity hampers the ability to increase rates
MARSH April Year of the Cats - But How Bad Is Bad? –Through September total reported losses for U.S. Japan and New Zealand catastrophes are $46.5 billion –While a big number, keep in mind insurers reporting these losses had $749 billion in surplus at year end Losses are about 6% of surplus –Losses are reported by 81 entities –Largest losses reported by commercial/personal lines insurers are State Farm $5 billion, Lloyd’s $3.8 billion, Munich Re $3.6 billion, Allstate $2.7 billion, Chartis $2.1 billion, Swiss Re $2 billion, Liberty $1.9 billion, Berkshire $1.5 billion –All these amounts are manageable for all commercial carriers
MARSH April 2015 It’s a people business… Mike Marino - Chartis to RSA/GCAN Toronto Patti Naigle - GCAN to Sovereign Calgary Mary Robichaud - Liberty to CNA Calgary Kathy Barter- GCAN to Catlin Calgary Willy Stugis - to QBE Canada Vancouver Val Jobson - Chartis to QBE Toronto Katya Kondratenko - Commonwealth to RSA/GCAN Vancouver Mike Baxter – Swiss Re to XL Toronto Martin Gaffney - Aegis NJ to CV Starr NY Darlynn Courage - Liberty to Temple Calgary Rob Cruickshank – Zurich to RSA/GCAN Toronto Derek Reedie – Zurich to Catlin Toronto
MARSH April 2015 When will change occur? Escalating combined ratios (note first 6 months in US were 110% and ROE dropped from 6.4% to 1.7%) Escalating reinsurance costs Equity market improvement resulting in a diminution of capital When the collective market says “enough is enough”
MARSH April 2015 How low can you go?
MARSH April 2015 Advisen QuickNote February, 2011 “The property & casualty market is roughly $74 billion overcapitalized, substantially an outcome of surging supply (policyholder’s surplus) as equity markets rebounded coupled with diminished demand for insurance capacity brought on by the Great Recession. One unprecedented mega-catastrophe, or several very large catastrophes in close succession, could destroy the excess capacity and trigger a turn in the market, but the more likely scenario is slow, painful haemorrhaging of capital as deeply eroded rate levels take their toll. Insurers will have limited ability to offset rising underwriting losses with reserve releases, and investment income will decline as insurers are forced to invest in low-yield fixed income instruments.”
MARSH April 2015 J.P. Morgan North American Equity Research Paper October 24, 2011 “Commercial Insurance prices in the US, which were bottoming mid-year, now appear to be improving with positive rate gains being reported in a number of product and market segments. While this is clearly a positive development, rates need to rise further over a sustained period of time to significantly improve earning prospects across the group…As a result, we are sceptical that we are witnessing a traditional cycle turn.”
MARSH April 2015 Whatever…What can I expect? +/- 10% for a good risk with very few losses … maybe.