Intense competition and pressure on premiums in the insurance market are set to continue, Marsh MD and Head of Placement for Asia-Pacific John Donnelly warns.

He says fewer catastrophic losses have ensured the market remains profitable, but competition will intensify as insurers go for growth.

“We are seeing increased competition in domestic insurance markets, and that’s true globally as well,” he told insuranceNEWS.com.au.

“Every insurer in the world has an appetite for growth and, given that there’s no major economic growth globally, if they’re going to get growth that means either stealing business from each other or going for mergers and acquisitions.”

Mergers and acquisitions increased last year, and Marsh expects that to continue this year.

But Mr Donnelly says the quest for revenue growth will shape market activity.

“The big guys are looking at every area of the market to try to grow.”

Rate reductions in the property market intensified last year and were most pronounced on larger risks as insurers competed for premium accounts to meet growth targets.

Mr Donnelly expects rates to continue falling this year because of increased capacity and competition among insurers.

He also predicts the decade-long decline in liability premiums will continue. Larger accounts experienced the greatest reductions last year, with many long-established client-underwriter relationships changing.

Several accounts were “repatriated” from the UK as the Australian market intensified competition by offering broader coverage and better terms.

“If you take Europe in the past 18 months or so, London and Europe have not been as competitive as Australia,” Mr Donnelly said. “A lot of business was repatriated to Australia and they’re now fighting to get it back.”

Singapore’s emergence as a regional insurance hub will be another source of competition for Australian insurers.

“Five or seven years ago, Singapore was a place to hang a shingle – now it’s a serious hub. The vast majority of business being done there is Asian, but more and more we’re seeing interest in taking a share of Australian accounts.”

Reinsurance broker Guy Carpenter, sister company of Marsh, notes the flow of capital into reinsurance markets from insurance-linked securities and “collateralised” reinsurance transactions, which is attracting interest from non-traditional sources such as pension funds.

Guy Carpenter Pacific Region CEO Tony Gallagher says it remains to be seen whether investor interest can be sustained.

“The big question, the real question over the next 10 years, is what will the response of pension funds be to serious losses?” Mr Gallagher told insuranceNEWS.com.au.

“It’s often said that pension funds are late to come and slow to go, but if there’s a very large catastrophic event, particularly if it’s at the same time as a major economic event, it will be interesting to see how they respond.”