Commercial Market: The Hardening Market We Had To Have

David Hoffmann, Head of Corporate & Risk Management, Suncorp, said he didn’t believe this was a ‘hard market’ and the industry was experiencing a period of price increases, in a presentation on Monday at the NIBA Convention that included a practical session on communicating with clients over difficult conversations.

Hoffmann explained the benchmark he sets was after 2001/02 year after the World Trade Centre attack, which was an unmodelled (uncosted) event, that took capital from the financial markets.

He presented a slide showing how Global Reinsurance Capacity has risen dramatically. In 2006, there was US$385 billion capacity. It now stood at US$605 billion. Part of the reason was a long calm period followed by Hurricane Katrina, and now Irma, which would impact capacity further.

This should attract capital to Australia, which is a “fantastic place for diversification” of insurer balance sheets.

The real reasons for rising prices could be seen in the rates of 2016 Combined Operating Ratios (COR) which showed costs (claims, expenses, reinsurance and commissions) as a percentage of premiums. They showed costs were outstripping premiums on commercial property (115 per cent down from 133 per cent), commercial motor ratios have risen to 105 per cent due to car technology costs, and Directors and Officers (D&O) had risen to 120 per cent due to class actions.

Hoffmann pointed to the increasing rate of natural peril losses from catastrophes. A long benign period of 25 years, was compared to the increasing rate of natural catastrophes. The 10-rolling year average for exposures averaged $220 million in 2006. In 2017, it’s over $500 million, which is still understated.

Hoffmann felt this wasn’t a hard market, but a market passing on years of rising costs due to natural disasters, which might continue in the short term. The hard sectors were in new building materials, EPS, recycling, high hazard jobs and buildings with cladding. Insurers are still unsure how to price them.