Analysts and global markets are looking for any sign of recovery that “kick starts” the economy. The original catalyst of the problems, the US housing market, is now showing signs of recovery and the UK stock market recently had its best three-month performance since it started recording it in 1984. Against this, the US dollar has slumped and traders are taking refuge in gold, for which prices as of print time had hit a record high of $1,170 per ounce!

Meanwhile, the underwriting fraternity, which suffered from investment losses and an above average hit from catastrophes in 2008 (Gulf of Mexico windstorm, mining floods & offshore construction), are now targeting pure underwriting profits through a disciplined underwriting approach. Whilst underwriters have been hit by a depletion of capital, evidence over the last six months points to an availability of capital for those that need to replenish their reserves, albeit at a higher price.

An oversupply of capacity is expected to chase premium income in 2010 with the forces of supply and demand manifesting themselves through softer market conditions.

Treaty renewals for the direct underwriters are ongoing, and whilst costs may increase, particularly for catastrophe-exposed areas, strategies to retain more risk and premium income are expected to result in reinsurance costs being carefully managed. Victor Peignet of Scor Global P&C recently stated: “There is a fight going on within insurance companies for capital allocation and, as a result, we could end up with big withdrawals if certain business lines are not deemed to be profitable.”

A review of the historic premiums versus claims records indicates that 2009 may result in a technical underwriting profit for insurers.

In the absence of any further major market losses, an oversupply of capacity is expected to chase premium income in 2010, with the forces of supply and demand manifesting themselves through softer market conditions. Rates are forecasted to drop in 2010.

2009 was another historic year for the Atlantic windstorm, one of the key drivers in pricing for the offshore energy market. The year was historic for a number of reasons. After the losses recorded in 2005 and 2008, 2009 was the year international “wind” capacity was in short supply; the year that clients opted for self-insurance; and the year there was a significant reduction in storm activity.

The season (1 June - 30 November) is now closing and has been “very uneventful” with the exception of Ida that made landfall late in the season.

There were nine named storms but only three evolved into hurricanes – Bill (category 4), Fred (category 3) and Ida (category 2). Only Bill and Fred were considered as “major hurricanes”, with sustained wind speeds of over 111 mph. Based on analysis by Klotzback and Gray/Colorado State University, activity was 61%, 38% and 51% of the 1995 - 2008 average for named windstorms, hurricanes and major hurricanes respectively. This was the result of a moderate El Nino effect.

2009 has been a year of worldwide financial crisis, a year that has demanded innovative solutions to enable clients to weather the storms. Thanks to the benign hurricane losses, 2010 should be the year clients look for the benefits.

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