The global insurance market remains well-capitalised and competitive despite the series of natural disasters eating into reserves in the first half of this year, according to research by Marsh.

But it warns the market remains under pressure.

The broker notes that many insurers’ catastrophe reserves were eroded or exceeded in the first half by the Christchurch earthquake, Australian floods and Japan tsunami, then depleted further when the US hurricane season started.

Marsh’s Second Quarter 2011 Insurance Market Update says the June renewals results varied widely depending on loss records.

“Generally insurance programs with catastrophe exposures representing at least 25% of the total insured value were likely to face up to 15% increases in premium rates at renewal.” 

Renewal rates for New Zealand earthquake risk increased by 10-30% and in Japan earthquake risk rose by 30-50%. Catastrophe rates in other territories, including US and Caribbean wind exposures, saw increases of 5-15%.

Bowring Marsh CEO Nick Bacon says although the global insurance market has ample capacity, some insurers have withdrawn from catastrophe-affected regions such as Japan and loss-making sectors of business.

Expectations of an active US hurricane season and greater insurer discipline increase the potential for the market to change during the remainder of 2011.

“Although there has not been an overall change in market pricing in the wake of further natural catastrophes in the second quarter – including storms and tornadoes across the US – the global insurance market remains under pressure,” he says.

Accounts affected by losses, or with a significant proportion of catastrophe exposures, are experiencing tougher market conditions, while clients who have not made claims or who have a relatively small catastrophe exposure are less likely to get a reduction on renewal.

Insurers have also become more focused on increasing retention levels and reviewing terms and conditions. They are scrutinising contingent business interruption coverage as well as definitions for flood, earthquake and named windstorm.

The report says that now rate reductions are less common, “it is important that clients meet with underwriters to differentiate their operations and to discuss their risk management strategies and contractual liabilities”. 

Reinsurers remain adequately capitalised despite taking losses this year that are already more than double their natural catastrophe budgets for 2011 and Marsh notes that capacity issues differ between markets. Some London market insurers have withdrawn capacity for certain risks but there have been no reported reductions of catastrophe capacity by Bermuda-based insurers.

“As a result of this uneven response, insureds are increasingly looking to international markets to fulfill earthquake capacity requirements.”