The following Insurance & Reinsurance practice note provides comprehensive and up to date legal information covering:
This Practice Note considers hard markets and soft markets in the insurance industry and how market conditions affect underwriting, premiums and claims. It also provides practical guidance for insurance renewals.
The insurance market can be described as hard or soft, reflecting the economy, market conditions and competition. In a hard market, fewer insurers are willing to offer cover and those that do may provide more limited cover and charge more premium.
Life insurance is typically less affected by adverse changes in the market, compared with non-life insurance, which offers shorter periods of insurance. The insurance market needs to be flexible to change and ensure its risk appetite and pricing reflects the changes. An insurer’s diverse portfolio typically allows it to absorb losses from one book of business to another but it should be remembered that an insurer does not necessarily keep its claims reserves in a separate bank account. It will invest the premium it receives and in turn use investment income to support its operation costs. However, some events, such as a global recession, may cause many books of business to be affected at one time, causing a noticeable shift in the market. While Solvency II factors for a one in 200-year loss, at any one time, an insurer may indeed suffer such losses in a short period of time.
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