4 December 2015Actuarial & underwriting

Soft market should be considered the new normal

With the third quarter of this year registering the tenth consecutive quarterly decline in re/insurance rates, the soft market must now be considered the new normal, Chris Lay, president of Global Captive Solutions at Marsh, told delegates during the Insurance Market Update panel at the Cayman Captive Forum taking place this week.

Marsh estimates the global composite market decline in rates is 4.8 percent, with property showing a steeper drop of over 5 percent. There are exceptions and emerging cyber risk showed an increase of 12 percent.

Regionally, the decline was most apparent outside the US, with Asia Pacific, Latin America and the UK and showing biggest falls.

Factors continuing to depress insurance rates are the surplus capital being committed, more sophisticated price methodologies and the fairly benign catastrophe market.

“Capital coming from new sources is a major influence,” Lay said, noting that alternative capital has showed compound annual growth of 22 percent over the past six years.

The ILS market, meanwhile, has had a banner year to date, with 16 deals in the first half of 2015, worth $3.8 billion.

Consolidation in the market has clearly been a big factor, with 23 significant insurance and reinsurance deals taking place since 2014. The biggest drivers here, Lay said, is a search for scale, as well as investment and business diversification.

Asia Pacific has been a particular hot spot, with deal value up 400 percent this year to October. “The main story is Asian capital, led by China, seeking investment overseas,” Lay said.

Despite the prolonged soft market, the captive sector continues to expand, with significant growth in new emerging economies. In China there are 150 state owned and over 100 private enterprises considering captives, Lay said, while in Dubai there is a long list of firms seeking more control over global risk and Latin America is seeing a huge explosion in interest, feasibilities and formations.