Although property casualty insurance capacity still exists in some areas in the US's east coast, the rate at which it is vanishing, especially in coastal areas, as well as the steep prices being offered for available capacity, have industry executives concerned about pricing discipline.

"Someone's going to have to blink soon," said Ted Kelly, chairman, president and CEO of Liberty Mutual Group Inc.

Property catastrophe capacity was high on the list of concerns for panelists from the property casualty industry at Standard & Poor's Ratings Services' recent annual insurance conference, "Insurance 2006: Rethinking Risk."

It appears that whether insurers price risk properly is a worry to market players. Even though premiums have doubled in the past three to four years, "pricing in primary markets isn't supporting the cost of reinsurance," Kelly said.

Kelly said that reinsurance capacity might still be 20 percent short of demand in the southeastern US and "problems getting insurance in the Gulf region haven't been settled yet."

Companies "should look at their enterprise risk management and what kinds of controls management has on currency and hedging," said Martin Sullivan, president and CEO of American International Group Inc., who would also like to see construction codes improved in the Southeast.

Property casualty industry pricing, looking forward, is a huge question mark and an additional worry for these CEOs. If 2006's hurricane season is benign, pricing discipline will remain, especially in the catastrophe area, Sullivan said.

Kelly, however, was not so sure. "A pricing bloodbath" could ensue if the hurricane season is moderate, he said. "Watch October renewals--they will be the first sign of a lack of discipline," he warned.
Source: Insurance Journal