Figures from Marsh make for good reading for Commercial Risk Europe readers too. They report no overall change to European commercial insurance rates in the third quarter of this year, although many catastrophe-exposed risks did witness an uptick in pricing.

Global casualty market capacity remained constant in the third quarter with no reported reductions. Most casualty business renewed either flat or with small deceases, said Marsh.

Those European property accounts unaffected by catastrophes managed to secure further reductions of up to 10% said the broker in its Insurance Market Update that covers global and European markets.

For exposures in high-risk earthquake or wind zones, increases were 10% and above, depending on the results of risk modelling analysis, added the broker.

“Across lines of business, insurers priced risks competitively and retained a healthy appetite for new business. Although rates remained relatively stable, reductions were common in many lines. The size of global insurance market capacity remains very strong, but is more challenged in loss-affected regions,” said Dean Klisura, Marsh’s US Risk Practices Leader.

The supply/demand balance of capital remains strongly in the favour of buyers.

Aon’s Chief Executive Officer Greg Case made this point clear during Ferma’s ‘What keeps you awake at night?’ panel debate at its forum last month hosted by CRE Editor Adrian Ladbury and Nathan Skinner of Strategic Risk. Mr Case added that, in the absence of a major event, this situation looks unlikely to change in the short term.

“A year and a half ago we said that the supply/demand imbalance was about one hundred billion dollars...We have seen a lot of events since then but when you add them all up they are in the order of forty to sixty billion dollars, still not past the inflection point. When you think about putting that in perspective hurricanes Katrina, Rita, Wilma—some of the biggest events in the history of insured risk—were forty, fifty and sixty billion-dollar events. So that is the kind of supply/demand imbalance we still have,” he explained.

However there was a note of caution from the brokers and insurers on the panel. They warned that with the current low interest rate environment and volatile financial markets limiting insurers investment returns and recent high natural catastrophe losses, eventually something must give and rates will likely move northwards.

Marsh has warned separately that the large level of losses in the first half of 2011 means that there is still the potential for a change in market dynamics this year, especially if there is a further significant market loss.

“When you look at all of the economics that make up our market place—low interest rates, high combined ratios and cat losses at their current level—you have to figure at some point they are going to translate into price,” said Marsh Europe Chief Executive Officer David Batchelor. “At the moment it does not seem that way but it will be interesting to see what happens around the fourth quarter reinsurance treaty renewals and their impact on primary pricing,” he continued.

Insurers on the Ferma panel were keen to stress the pressure that they are under and the likely knock-on effects for buyers. There is a lot of tension and uncertainty in the market, said August Pröbstl, Head of Munich Re’s Corporate Insurance Partner division, driven by various market conditions and heavy losses.

“So historically you would think this would lead to a broader market hardening. We have seen some hardening in certain lines and geographies but overall it is fairly stable. There is uncertainty—the all time low interest rate environment and volatile equity markets for example—so I would assume that everybody in the industry recognises that not only in the short term, but also in the longer term profitability has to come from our core business. For us this is underwriting so I would imagine more discipline,” he argued. But he conceded that there remains a hefty amount of capital still within the market.

ACE’s Country Manager for France, Jeff Moghrabi, said: “In this volatile climate no actor (insurer) regardless of size and diversification can feasibly run a combined ratio above 100% for a long time, how credible is that actor going to be to his partners—the brokers and risk managers?” he asked.

Insurers’ combined ratios have been under pressure with some of the largest reporting them above 100% in the first half of this year.

The risk transfer industry is often accused, with good reason, for talking up the market and trying to push through rate increases. But, buyers’ representatives are beginning to accept that the market is in transition and warning risk managers to beware of potential changes.

A recent study of insurance market trends by the French risk management association Amrae has concluded that although most lines will remains stable in the short term insurers are likely to become ever more focused on technical results and that the current soft cycle is nearing its end.

It also highlights noticeable exceptions to the stable market in areas such as motor where prices are rising significantly.

“The market is stable, but we are in the end of a cycle,” said Catherine Pissel, the author of the Amrae market study and Deputy Risk Manager at Veolia Propreté.

The trend is still decreasing prices in most lines, but insurers are being increasingly vigilant over buyers’ loss history, she added. “Therefore, in the next renewals, rate increases could be significant, even if some decreases are expected depending on the capacity,” she said.

The study advises insurance buyers to keep their eyes open and be prepared for a market that is clearly fluid, she stressed. “I would tell risk managers to remain attentive. We are living in a transition period and we don’t know yet what direction the market will take,” Ms Pissel warned.

An important factor in the market is the accumulation of losses caused by natural catastrophes in recent months, which have been putting the reinsurance industry under growing pressure, Amrae said.

But Ms Pissel said that the situation is not even close to that of 2005, when a spate of events headlined by hurricane Katrina in the US caused major commotion in the reinsurance market. But Amrae believes that the lack of significant investment returns, due to turmoil in global financial markets, is putting pressure on the risk transfer industry.

As a result insurers are becoming more selective of the risks they take on. “Companies are likely to focus on technical results and become more selective with the risks they underwrite,” Ms Pissel remarked. “The market is reconfiguring itself and we are set to see some considerable rate hikes, sometimes of up to 50%,” she added.

So whilst the current soft cycle may be reaching an end, experts in certain quarters are suggesting that extreme and volatile market swings are a thing of the past. Improved technical underwriting and mini-hardenings in certain lines are providing some balance to the depression in rates as a whole, they say.

“That is good news because a bubble was building up in 2001. Inverse of a housing bubble it was a bubble of depression that was building up and creating pressure. What you see in the last three years is that there are many hardenings taking place in the market. Each time there is one of those mini corrections they are helping to release some of that pressure that is building up for a potential cycle,” argued Lex Baugh, Chief Executive Officer of Chartis Europe.

He flagged up a recent McKinsey Global Institute insurance market analysis that suggests a dampening of the cyclical impact. “I hope that is true as it is the right thing for us to deliver as a product and I am reasonably confident that there is some evidence of things moving in that direction,” he concluded.

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