More than $100 billion in capital excess for insurance and reinsurance markets will see the soft market continue, according to a global expert.

Aon Risk Solutions Chairman and CEO Steve McGill told a financial risk conference in Melbourne last week that “pockets of optimism and pessimism” surround rates and capacity in the global insurance landscape.

“When looking at the big picture there is about $80 to $100 billion in excess capital in the industry,” he said.

Mr McGill says half-year results show insurance capital is up by 2% on the corresponding period last year, and reinsurance capital is up by more than 10%.

“There’s more capital relatively in the reinsurance space than insurance, and if you package all that up there is about $100 billion in excess capital,” he said.

“So when we look out to 2011 we see an environment where rates are going to continue to be softening for the balance of this year and going into 2011.”

But it’s not all bad news, with Aon researchers finding some hope for a market turnaround, although he says it won’t happen overnight.

Mr McGill says the link between written premiums in the US and gross domestic product (GDP) has been measured since the 1970s, and shows that when net written premium in the US as a proportion of GDP hits or falls below 3%, the market hardens.

“This happened in 1974, 1984 and 2000,” he said. “Right now that statistic is at 2.9%.

“If you look at it today, the combined ratio of the industry is 101% and back when we had the last hard market the combined ratio was 115%.

“If we look beyond 2011 we might begin to see the stabilisation of rates.”