Napco Cat Says Commercial coverage Harden

 

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4 February 2009 Wednesday 05:01 PM EST

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Napco Cat Says Commercial coverage Harden

Meg Green

EDISON, N.J.



Fasten your seat belt, the rates of catastrophic coverage in the commercial property market is increasingly difficult, Napco, a wholesale dealer.

In the first quarter, turnover rates of property have been flat at 10% higher, and the second quarter could see prices increase by 10% to 25%, said John Landry, Executive Vice President and Regional Director of the Office Napco Cincinnati.

Difficulties in the financial sector is a major driver of the hardening market, "said Landry. "When the investment market and financial markets are doing well, insurance companies can offer lower premiums and invest the premiums in the stock market and make a profit throughout the global investment vehicle . When it is not there, they have to make a profit on the risk itself.

"Underwriters have to say that they are to return to the subscription accounts. They must make a profit on the accounts. If they feel the account has an appropriate level, in May he not get the same rate of increase which is an account underpriced, "said Landry.

Also, rates are rising in the wake of significant losses in 2008 due to hurricanes Gustav and Ike.

This disc is different from the market the hard markets of the past, "said Landry. "From what I hear now, it will be a long cycle of tightening in May. May it not be as strong as right after [Hurricane] Katrina, it is May and slower growing. But I think it will last longer and that the last plateau difficult market, we had after Katrina, "Landry said in an interview with BestWire.

After Katrina - and other major disasters such as terrorist attacks of 11 September 2001 - the reinsurance market and other investors rushed to take advantage of the hardening market. They have brought new capital into the market, which helped in terms of prices.

This is not the case now, because of the turmoil on financial markets, he said.

"I see no new capacity coming on the market, and is generally what would be the engine cycle again," said Landry. "This will be very long to get out of this."

What is also difficult to drive the market, in part, is "skyrocketing" costs of reinsurance, "said Landry. Gustav and Ike last year and the current financial market requires reinsurers to raise rates. "The [first], we deal with the carriers to charge increases only to cover their costs of reinsurance," he said.

The capacity is still available, but it is often to take more confidence to sign a single contract to reach capacity demand, "said Landry.

Also, with many companies feel the sting of the economic crunch, companies are putting pressure on the demand for premium hikes.

"Companies do not have money to spend on insurance premiums, so rather than pay the increase, they opt for greater retention or purchase franchises or lower limits or capacity to cover their risks, "said Landry.

The third quarter rates depend in part on the next hurricane season, and how much activity occurs, "he says.

(By Meg Green, senior editor, BestWeek: Meg.Green @ ambest.com)

5 February 2009

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