PWC survey shows optimism despite slippage in several sectors

London Market insurers are bullish about the future despite the reality that rates have already begun to soften.

PricewaterhouseCoopers (PWC) conducted a survey of operational drivers in the London insurance market from both Lloyd's and the company market. It found that some property rates had fallen by as much as 40%, with aviation rates also falling.

Marine rates are likely to begin falling soon, but rates for casualty business are expected to increase further in 2004, with some classes such as US directors' and officers' insurance expected to continue to harden in 2005, according to the survey.

PWC partner Philip Calnan said that despite the beginnings of a soft market there was "a strong degree of optimism" among market participants, and rates still have a long way to fall before they become unprofitable.

Calnan said: "2002 was about seizing opportunities ,whereas 2003 is about consolidation and preparing for cycle change."

Calnan said that with the cycle beginning to shift, it is important insurers stay focused on profitable underwriting. "The issue of whether anything will be different this time is the key question," he said.

Respondents said that although they intended to maintain underwriting discipline, "one of the recurring weaknesses of the subscription market is that there always seems to be someone prepared to lead the slip". They ranked the incidence of catastrophic losses as the key driver of the underwriting cycle, followed by competition from within the London Market.

But Calnan said that external influences could force insurers to hold the line on rates. He said overseas capital providers had stated that they would withdraw capacity if rates began to drop, a factor which could encourage insurers to maintain ratings.

Underwriting performance and cycle management remains the most important operational drivers for insurers, followed by aggregations of exposure and the impact on results, people and capital management.