Aon Reports US Commercial Property Rates Drop 10%

A study by Aon, released to coincide with the RIMS conference in San Diego, has determined that an average reduction of around 10 percent has occurred in U.S. Commercial property rates. Willis and the CIAB also issued reports on current market developments (see related articles).

A combination of improved investment returns for insurers and increased capacity, together with a significant absence of man made or natural catastrophic losses in 2003 were the chief factors involved in the decrease.

Aon’s 2004 US Property Report and survey also found that buyers, in contrast to last year’s survey, are “increasingly concerned about the impact of terrorism and the uncertainty surrounding the anticipated withdrawal of the US Government’s Terrorism Risk Insurance Act (TRIA)” (See related article).

“While the insurance market has gone some way to repairing the battered balance sheets and under reserving of previous years, competition among insurers continues to grow as they fight it out for market share, which in turn has driven rates down further,” the bulletin continued.

Aon said that its “informal survey of both buyers and sellers within the 2004 US Property Report found that insurance buyers:
— see the use of captives and self insurance as the most significant change to their risk financing strategies in recent years;
— will miss TRIA and anticipate a period of uncertainty while US carriers decide whether to continue offering terrorism cover. While sellers:
— found it difficult to maintain market share in the face of growing competition;
— saw the US and Bermudian markets being the most dominant for US property insurance.

Nick Maher, Chairman of Aon’s Global Property Practice Group, commented: “We said last year that the insurance market for commercial property in both the US and Europe was balanced on the edge. There is no doubt that it has now toppled over with US clients being the first to see the real benefits, as rates fell in 2003 by an average of 10%. We expect this trend to continue unless the market experiences a rapid upturn in either man-made or natural catastrophes, which in 2003 were at a remarkably low level.”

Gary Marchitello, Managing Director of Aon’s National Property Practice Group in the US, added: “Buyers of property insurance do tend be the first to reap the benefits of the insurance market cycle and this recent downturn has enabled buyers to reduce costs without having to significantly increase retentions. The anticipated withdrawal of the US Government’s TRIA provision has however raised a great deal of uncertainty amongst buyers who are showing increasing concern about the potential impact of terrorism on their business.”

For further information, or a copy of the Aon 2004 US Property Report, please see www.aon.com, or contact: James Wood/Sebastian St. John-Clarke Aon Press Office (UK) T: 0044 (0) 207 216 3205 T: 0044 (0) 207 505 7201 James.Wood@aon.co.uk—sebastian.clarke@aon.co.uk Al Orendorff Aon Corporate Communications (US) T: 001 312 3813153 Al_Orendorff@asc.aon.com.