Swiss Re: Hard Market Not Dead Yet

By Michael Ha

NU Online News Service, Dec. 14, 4:22 p.m.EST?Property insurance rates have been taking a downwardturn this year and some casualty rates are also showing signs ofsoftening, but it's still premature to sign the hard market's deathcertificate, according to a Swiss Re executive.[@@]

The comments on the U.S. insurance pricing environment wereoffered by Patrick Mailloux, chief executive officer of the SwissRe America Corp., during the reinsurer's annual year-end industryreview held today in New York.

Mr. Mailloux recalled that this year the industry started tonotice a rate decrease for property during the first quarter, whilesoftening in some casualty lines began in the third quarter.

"Now, does that mean the hard market is over?" Mr. Maillouxasked. "No, it does not."

Mr. Mailloux pointed out that prices still are at veryattractive levels and that overall the p-c industry is in a muchbetter situation today than it was three years ago.

"What we are seeing is that $100 of premiums in the 2001 thirdquarter was at about a $130 level during the 2004 third quarter onaverage when you look at all lines combined," he said.

But the pricing landscape still varies quite a bit by businesslines, Mr. Mailloux said. He noted that property lines arecomparatively at the lowest level among business lines because ofthe recent rate drops. For property lines, $100 of premiums fromthe 2001 third quarter stood at slightly above a $110 level in the2004 third quarter.

Directors and officers and errors and omissions lines, on theother hand, are still at the highest levels comparatively speaking,with premiums standing at near a $150 level relative to the $100premium from the 2001 third quarter.

"Where do we stand in the cycle? As we see them, most lines ofbusiness are still at very attractive levels," Mr. Mailloux said.He noted that some casualty lines of business are still showingpotential for rate increases while other lines like engineering andmarine are at the very peak.

Currently, property lines are "a bit of a question mark" afterthe four hurricanes, Mr. Mailloux said. He said that while he'sseeing some moderations in property rate decreases, "it's stillearly to tell ultimately what pricing effect the four hurricaneswill have on property lines."

In his presentation, Mr. Mailloux also cautioned that while theindustry focuses a lot on rate increases, it also tends to forgetat times that there is still significant loss inflation in somelines of business that erode rate increases.

He explained that around the world, property exposure keepsgrowing, and some of the trends the industry is absorbing in termsof natural catastrophes include concentrations of value andpopulation in coastal areas and higher insurance penetration. Andthere is also a new threat dimension of man-made catastrophes sinceSept. 11, 2001, he warned.

Speaking on the industry's underwriting performance, Mr.Mailloux said that in the first half of 2004, U.S. p-c insurersoverall were standing at about 94.5 percent combined ratio. But inthe second half of 2004, the industry was hit by four verysignificant hurricanes, adding about $22 billion of losses to theindustry.

Mr. Mailloux said those hurricanes would probably add 6 pointsto the industry-wide combined ratio, which would bring the combinedratio for the year to about 100 percent.