Soft market could be around until 2010

North American and Bermuda reinsurers have authorized substantially more capital for the insurance market in 2008 than in 2007, meaning the current soft market could continue well into 2010, Guy Carpenter & Company LLC predicts.Kevin Stokes, the global leader of GuyCarp’s specialty property initiative, presented industry statistics for the U.S. property and casualty market on a snowy day in downtown Toronto. In one of his slides, Stokes noted Bermuda reinsurers have authorized a maximum market capacity of US$1.9 billion in 2008, up from 2007. He observed this would likely lead to a further softening of the insurance market.”People are going to want it [that capital] to work,” said Stokes. “The capacity is there and it will get hungrier. It’s just going to want to get bigger.”Buoyed by the capacity, the North American P&C insurance market has seen average rate decreases in the property lines of about 10% in 2007. Stokes noted price-slashing, a product of a very competitive market, has been recorded as high as 40% on one particular piece of U.S. business. On average, Stokes, said, U.S. insurers and reinsurers in 2007 walked away from a business deal when the premium price dropped to 25% below normal. In comparison, in the Bermuda market, insurers balked when insurance rates reached 26.8% below normal, and in the London market, insurers declined when the prices reached 17% below normal.Sean Mooney, the chief economist and research director for Guy Carpenter, predicted the soft market could conceivably continue into 2010. His prediction assumed the continuing absence of mega-catastrophes, a consistent rate of price decline and a relatively stable loss ratio.