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Presentation on theme: "RIMS SOUTHERN ALBERTA CHAPTER MARKET UPDATE 3 NOVEMBER 2011 Bill Forsyth Calgary."— Presentation transcript:


2 MARSH 1 26 April 2015 The Insurance Market Cycle

3 MARSH 2 26 April 2015 The Insurance Market Cycle

4 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.

5 MARSH 4 26 April 2015 Too many moving pieces… Economy Catastrophes Equity market Interest rates Underwriting results Additional capacity Insurer changes

6 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

7 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)

8 MARSH 7 26 April 2015 Markets for specific coverages can harden independently and quickly… Terrorism Asbestos Pollution US exposures Nat Cat

9 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

10 MARSH 9 26 April 2015 ’80s retro… Strathcona General Cardinal United Canada Northumberland Century Advocate General Gone and long forgotten…

11 MARSH 10 26 April 2015 A couple mitigating factors CAT losses of 2011 CBI May have some impact on treaty renewals

12 MARSH 11 26 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

13 MARSH 12 26 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

14 MARSH 13 26 April 2015 2011 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 2010. 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

15 MARSH 14 26 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

16 MARSH 15 26 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”

17 MARSH 16 26 April 2015 How low can you go?

18 MARSH 17 26 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.”

19 MARSH 18 26 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.”

20 MARSH 19 26 April 2015 Whatever…What can I expect? +/- 10% for a good risk with very few losses … maybe.

21 Marsh is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer, and Oliver Wyman. Copyright © 2011 Marsh Canada Limited and its licensors. All rights reserved. | This document and any recommendations, analysis, or advice provided by Marsh (collectively, the “Marsh Analysis”) are not intended to be taken as advice regarding any individual situation and should not be relied upon as such. This document contains proprietary, confidential information of Marsh and may not be shared with any third party, including other insurance producers, without Marsh’s prior written consent. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modeling, analytics, or projections are subject to inherent uncertainty, and the Marsh Analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Except as may be set forth in an agreement between you and Marsh, Marsh shall have no obligation to update the Marsh Analysis and shall have no liability to you or any other party with regard to the Marsh Analysis or to any services provided by a third party to you or Marsh. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re- insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage.Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or reinsurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage.


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