Willis says an influx of capacity next year will generate more favourable conditions for buyers

The hard market for financial institutions (FI) insurance, which has seen insurers push premiums up by a minimum of 10% to 15%, is unlikely to last until the end of 2010, according to a new index.

Willis’ fourth quarter FI market update found that while insurers are still concerned about their 2007 and 2008 loss ratios and are, at present, underwriting very conservatively, the expected influx of new markets for 2010 will help to generate more favourable trading conditions for buyers.

Duncan Holmes, managing director of FINEX Professional Risks, said: “We are going to see new capacity enter the market in 2010, but at the moment, most financial institutions insurers are committing their capacity with great care and caution and will continue to do so until they have confidence that the amount of new losses is going to fall considerably, and stay at a lower level. The current state of affairs cannot last forever and at some point in 2010 we expect confidence levels to increase”

Other findings of the report included:

• FI clients may see premium spikes at the beginning of 2010 as insurers seek to share the pain of expensive reinsurance renewals, with some reinsurers experiencing loss ratios of up to 300 percent over the last two years.

• The average premium change at renewal from September 2008 to September 2009 has more than doubled from 10 percent to more than 20 percent.

• Willis predicts that some green shoots may emerge in the small- to medium-sized financial institutions sector, where those with claim-free histories will drive competition between insurers, resulting in premium reductions.

Read the full text of the Willis FI Index report