Low effect of the USA credit crisis

The softening trend of the insurance products from Europe was slowed down by the credit crisis from USA, it is shown in the most recent insurance market report published by Marsh in the first semester of 2008. The tendencies can be easily inverted in the second half of the year, in case of getting over the unfavorable economic situation.

On most of the segments, the insurance market from Europe has continued the softening trend, due to the harsh competition from the local markets. However, as a result of the “credit crunch” from USA, and financial market turmoil since Q4 2007, the Trade Credit loss ratios increased.

„Premiums are likely to increase further in the next period, as a result of the difficult global economic trend. Even if it remains to be seen if the economic environment will also have an impact on the financial sphere, however there are signs according to which the loss level increased on this segment”, Jeremy Cooke, Head of Global Market Relationship Management of Marsh London explained. Most of the markets from Eastern Europe remain stable. Due to the international financial crisis, the weight of the trade credit insurances started to soften since the last quarter of 2007 and the market has hardened. The premiums are likely to increase also in the second semester of 2008. The difficult economic environment will also have an impact on the financial and professional (FINPRO) insurance market and other lines of business. The general softening trend that has been going on for the past few years is eventually going to come to an end, and the insurance market will harden in the near future following that the premiums to increase. The credit crisis from USA will accelerate the rhythm of change.

The accident insurances (casualty) from Europe continued to soften in the first semester of 2008, reporting only local increases (10% in Latvia). The segment includes all the casualty insurances, excepting life, healthcare and property insurances. Premium reductions of up to 20% were recorded in Austria, Belgium, France, Germany, Greece and Spain. In Ireland, Italy, Norway, Switzerland and Great Britain were recorded reductions of up to 10%, the rest of the European markets remaining stable.

In Romania the market seems to have become better educated and the demand for this type of coverage is in increase. The volume of claims is growing but the premiums ratio remained stable.

The European market of employees’ liability/workers’ compensation (EL/WC) continues to be stable. In most of the countries were recorded small premiums reductions, only Turkey reported an increase of 10%. Reductions of 10% were reported in Ireland, Italy and Great Britain. Also, there were reported premium reductions with 20% in Norway and Switzerland and with 30% in Belgium. In Romania the premiums remained stable. The demand is low, this policy being mainly purchased by multinational companies.

The market for property risks (property - insurances for buildings and goods) continues to soften, recording premium reductions of 10% in The Netherland, Great Britain, Germany. Premium reductions of 20% were reported in Greece, Ireland, Latvia, Norway, and Switzerland and of 30% in Spain and Turkey. For the moment the effect of the economic crisis wasn’t felt, but the premiums ratio seems to have touched a minimum on this segment, and the reductions are more and more difficult to be found especially on the European market. There were signs on the food market, for example, that the premiums will increase because the losses are in increase. An interesting example is given by Belgium, where the competition between insurers directed to premium reductions of up to 30%. Accounts that had not been renewed for a couple of years have had the benefit of very advantageous terms and conditions. In Romania the market recorded stagnation due to the low interest for this type of insurance and of the big damages suffered by some insurers in the last months. The uncertain situation regarding the legislation of the compulsory insurances of the houses can be considered another factor of the linear evolution of prices in this segment.

The auto insurance market is softening with 10% in most of the European countries and with 30% in Spain. The only European country that records an increasing trend is Romania, where the premiums rates increased up to 10% both for compulsory liabilities (RCA), as for optional ones (Casco), due to the high loss on this segment. As a result, most companies have introduced compulsory minimum deductibles that range between 50 and 100 Euro.

The European healthcare market on this business line is quite limited, and the Marsh research included only the medical malpractice insurances. Generally, the market remained stable, premium increases up to 10% being recorded in Austria and France, and premium reductions in Great Britain (10%) and Switzerland (30%).

In the EMEA countries, the trade credit insurance market is quite small. The market is generally stable, but there are also recorded premium increases as a result of the credit crisis from USA and of the increased number of insolvencies, so due to the increased number of losses on this segment. Premium increases up to 10% were recorded in France, Germany, Greece and Latvia, with 20% in Great Britain, with 30% in Spain. In Portugal, Switzerland and Turkey were recorded premium reductions with 10%, in Lithuania and Finland with 20%.

The environmental insurance market is limited in Europe, and most of the times the policies are being subscribed to General Liabilities. The market was encouraged by the European Commission Directive regarding the protection of environment. Reductions of premiums up to 30% were recorded in Belgium and Great Britain, with 20% in France and with 10% in Spain. In Romania the premium rates concerning the environmental liability remained stable. The limits of indemnity are low.

The first half of 2008 was marked by the hard turbulences of shares on the stock market across the world. Despite sharp falls in the market capitalization, the insurance market on the financial and professional liability lines (FinPro) remained relatively soft. The Marsh consultants were able to negotiate improvements of insurance terms and pricing reduction on most of the insurance lines. However, it is mentioned that claims are starting to increase in frequency. Although the Marsh experts don’t forecast a sudden increase of insurance prices, it continues the increase of claims and the degradation of the economic situation that could lead quickly to a change of the prices level practiced on this segment. In the first two quarters of the current year, the big companies have benefited of significant reductions on the segment of liability for managers (D&O). The insurers continued to be worried about retaining in portfolio the important accounts and have offered substantial rate cuts, that normally are being justified through a reduction in risk exposure. In Great Britain the softening trend has flatten due to some risks that have extended in United States. Advised by the Marsh consultants, the customers have chosen to extend their coverage, benefiting of good offers during this period. Premiums reductions for DOL policies with 10% were recorded in Germany, Belgium, Great Britain, with 20% in Austria, Finland, Greece, Ireland, Italy, Norway, Turkey and with 30% in Spain.

The study realized by Marsh, “Insurance market report for Europe, Middle East and Africa (EMEA), for the first half of 2008”, covers segments as: property, auto, casualty, healthcare, trade credit, environment, managers (D&O),professional indemnity and insurance for financial institutions, for 41 countries from the EMEA area.

Marsh is the most important brokerage company in insurances and risk consultancy across the world, member of the group Marsh & McLennan Companies (MMC). Marsh has 26.000 employees and offers consultancy services for customers from 100 countries.