The soft market can’t last forever. This thing is cyclical, we know, and commercial insurance buyers have had a very long stretch of favorable pricing. As we conveyed in Risk Management magazine last August, various industry forces appeared to be starting to turn the property/casualty market naturally. So after a devastating first quarter for catastrophe losses across the globe (Japan quake/tsunami, New Zealand earthquake, Australia floods, U.S. winter weather and tornados …) it isn’t surprising that more and more people within the industry are now expecting the market to begin hardening.
Today, none other than newly minted Lloyds Chairman John Nelson is broaching the topic.
“The challenge is to make sure that we maintain the significance and substantial improvement of underwriting standards over the last few years. That, I think, is a sine qua non for the success of Lloyd’s,” Nelson told Dow Jones Newswires.
Last year, Lloyd’s profitability fell “because it was quite a difficult year because of claims and because of low insurance premiums and low investment returns,” Nelson said.
Still, Lloyd’s managed to produce a pretax profit of GBP2.195 billion, down from GBP3.868 billion a year earlier.
“That’s still a good sign, but the conditions in the market remain challenging because you still have low investment returns, premiums haven’t increased very much and you’ve already got three major catastrophes so far this year, including Japan,” he said. “What we hope is that market participants are able to charge premiums–in some cases, it may be higher, sometimes it may not be–which are commensurate to the risks they’re taking.”
“The aim of Lloyd’s is to encourage a market where the quality of underwriting, not just risk-taking, but also the quality of premiums being charged, are balanced,” he said.
This isn’t exactly Nelson sticking a flag in the ground and preparing for a fight, but it does sound like he sees a future where premiums in many lines will be increasing in the near future.