Price Cuts Near Breaking Point

Emily Holbrook


February 1, 2011

A very quiet 2009 hurricane season was no harbinger of what was to come. A hyperactive 2010 season saw 19 total storms, 12 of which were hurricanes. Though it was an active season, no hurricanes made landfall in the United States, so monetary losses remained minimal. Now that the season has passed, catastrophe property insurance underwriters continue to reduce prices.

In fact, the market is so well capitalized that catastrophe losses would have to total more than $50 billion to spur a dramatic change in soft market conditions, according to a "State of the Market" report by NAPCO LLC, a wholesale broker specializing in catastrophe property coverage. "Most accounts will see price reductions at renewal, depending on their individual loss experience," said David Pagoumian, NAPCO CEO. "However, those that have already had significant reductions in prior renewals may receive only modest decreases."

Price declines so far have been in the 10% to 15% range on many accounts as insurers focus on top-line premium volume. But the report finds that underwriters may be nearing their breaking point for cutting prices. Because of this, rate decreases for 2011 will not be as dramatic as they have been recently and "prices may flatten out." Could this soft market be nearing its end?
Emily Holbrook is the founder of Red Label Writing, LLC, a writing, editing and content strategy firm catering to insurance and risk management businesses and publications, and a former editor of Risk Management.