Statewide Insurance Brokers - Pacific Insurance Market Report

Marsh risk ManageMent research

FeBrUarY 2014

Market PersPective

pACIFICINSURANCE MARKET REpORT 2014

ii Insurance Market report 2014

Contents

executive suMMary2Foreword1

11 Aviation

12 Employee Benefits

13 Environmental

14 Marine Cargo

15 Trade Credit

iNsuraNce Markets By sPeciaLty (austraLia)10

17 New Zealand

19 Papua New Guinea

21 Fiji

23 Multinationals

24 Captives

other Markets165 Casualty

7 Property

8 Financial and Professional Services

Major coverage LiNes (austraLia)4

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Marsh is pleased to share with you our Insurance Market Report 2014 for the Pacific region. In this publication, we provide you with a concise update on the insurance market in 2013 and insight into what lies ahead.

The insurance market is dynamic and susceptible to change from a variety of different causes. In recent times, the availability and price of insurance capital has been most directly influenced by the occurrence of catastrophe loss events around the world. 2013 was a relatively uneventful year in this regard, and most often indicators of change pointed in favour of insurance buyers rather than insurers.

With record levels of surplus capital in the global insurance market fuelling healthy competition among insurers, 2014 could prove to be another year of favourable conditions for Marsh clients. No matter the market cycle, and whatever your risk-transfer objectives may be, our experience tells us that success in the insurance market goes to those with improving risk profiles, quality underwriting information, and carefully planned and executed placement strategies.

John Clayton Pacific Region Head & CEO Australia

Foreword

2 Insurance Market report 2014

executive suMMaryThe year 2013 concluded with the most competitive insurance market seen in many years. There continues to be an influx of new capital into the reinsurance market (estimated at A$10 billion in 2013) and this surplus is fuelling intense competition. The New Zealand market has returned to some normality with insurers competing to repatriate business back from international markets.Most insurers’ profits in the pacific region increased in 2013, driven by a benign catastrophe season in Australia, New Zealand, and throughout the world. They have also benefited from increased premiums in the domestic insurance sector, which accounts for around half of Australian market premiums.1 However, signs are very positive for 2014.

Global equity markets performed strongly in 2013, particularly in the second half of the year. The business sentiment is more positive than in recent years, and there is a genuine belief that signs of recovery are real. Resource and infrastructure developments that were postponed in the last two years have a better chance of being launched in 2014, which is good news for the economy and the insurance market.

1 Australian prudential Regulation Authority, "General Insurance Supplementary Statistical Tables,"

available at http://www. apra.gov.au, accessed June 2013.

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MARKET OVERVIEW

Australia ȫ The intense competition in the property market, which started with real estate and infrastructure clients, spread to the manufacturing sectors as 2013 progressed. Insurers are now offering broader policy coverage and/or improved policy conditions, such as increased sublimits, in order to differentiate their products and gain a competitive advantage. We expect this trend to continue during the first half of 2014; it will be interesting to see how the market responds in the second half of the year, as many clients will have benefited from the market conditions in 2013.

ȫ If there is a difficult area of the market, it is power and mining risks. Several large losses occurred within these industries in the local and global markets again in 2013. As a result, several major insurers and reinsurers are providing less capacity for these risks.

ȫ Liability premiums have been declining for a number of years and, despite insurers having released a large percentage of their reserves, premiums still show no signs of increasing. The exception to this is high-frequency accounts such as retail and real estate, where the claims trends are a cause for concern with underwriters. As noted last year in this report, bushfire liability exposures are problematic for the market, with several insurers having reduced their capacity.

ȫ The directors and officers (D&O) liability market is improving for buyers. Primary policy wording enhancements, with an increased appetite for primary positions by insurers on risk managed business, coupled with new excess entrants created a competitive environment for 2013.

ȫ At the beginning of 2013, the energy market was described as “flat to marginally up.” By year’s end that description changed to “flat to marginally down.” There are, of course, variations in a number of segments of the energy market: liability is stable, the upstream market is definitely declining, and downstream is just holding with reductions starting to appear. Capacity remains strong with the expectation that available capacity will increase in the first quarter of 2014.

ȫ The state-based workers’ compensation schemes began to show improved returns for governments and insurers. The New South Wales’ (NSW) scheme achieved a dramatic turnaround from a A$4 billion deficit two years ago to a A$309 million surplus in 2013. Most states are undertaking a benefit and legislative review to improve performance.

New Zealand ȫ The market moved from a stable position to a highly competitive one in the second half of 2013. Following the Canterbury earthquakes, a large volume of business moved to the London and European markets. Uncertainty in the reinsurance market and the fear of more losses caused the local market, in some circumstances, to overreact on premiums and coverage. Local insurers are now competing to repatriate the lost business, which is producing positive results for buyers at renewal.

Papua New Guinea ȫ Being an “admitted” insurance market, with a comparatively small number of registered insurers, competition is relatively strong. Property and liability premiums increased modestly in the fourth quarter of 2013, with this trend expected to continue into 2014.

Fiji ȫ Insurance for flood and wind exposures is proving to be challenging for major buyers, with the London market providing much needed capacity. Rates firmed in 2013 and the expectations are that they will firm again in 2014. Many small and midsize enterprise (SME) clients are foregoing flood cover, as it is no longer available at reasonable terms.

Market Summary ȫ It is positive news, in the main, for insurance buyers with improved market conditions. It has been good news for insurance company shareholders with greatly improved profits. These two situations would logically appear to be in conflict. They may be mutually sustainable, but only if catastrophe costs remain relatively low and insurers maintain adequate pricing in the domestic insurance market.

ȫ Insurance Australia Group (IAG) recently announced the purchase of Wesfarmers Insurance's Australia and New Zealand underwriting operations. Is this the beginning of market consolidation with a round of mergers and acquisitions? Any major consolidation could have a profound effect on market capacity and competition.

ȫ 2013 produced a much better investment result for insurers, with recovery in equity markets. Investment returns will play an important role in the direction of the insurance market in 2014 and beyond.

Major coverage lines (australia)

5 Casualty

7 Property

8 Financial and Professional Services

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INSURANCE MARKET CONDITIONS

coverage rate change Q4 2013 rate change Q4 2012

GENERAL LIABILITY DECREASE 0% TO 10% STABLE -5% TO +5%

MOTOR/AUTOMOBILE DECREASE 0% TO 10% STABLE -5% TO +5%

WORKERS’ COMPENSATION/EMPLOYERS LIABILITY

STABLE -5% TO +5% STABLE -5% TO +5%

Market Commentary

Motor/aUtoMoBile2013 was a profitable year for the majority of commercial motor insurers due, in part, to the absence of major weather events. As a result of these favourable underwriting results, there was a marked increase in competition among Australian insurers in the third and fourth quarters of 2013. For corporate clients with well risk-managed motor fleet policies, rates decreased 5% to 10% on average.

Clients with a consistently poor claims experience and a lack of risk improvement have not benefited from this competition, as insurers are reluctant to expose their portfolios to these loss-making accounts.

Insurers continue to focus on controlling and reducing claim costs by streamlining claims processes, establishing more efficient repair networks (including entering into ownership of selected repair facilities), and taking more active management of the supply of automobile parts. As part of this focus on reducing claim-processing costs, one major insurer has recently moved its claims management function offshore.

In 2014, competition is expected to remain strong between insurers for clients with strong risk management and good claims experience, subject to no major weather events in the first quarter adversely impacting portfolio loss ratios.

CONTACT:

SCOTT GREUTERNational Manager, Liability & Motor Risks, Marsh & McLennan Agency +61 2 8864 8372 [email protected]

Casualty

general liaBilitYFrom a casualty perspective, the term “business as usual” would seem appropriate.

Capacity remains plentiful, so the predicted positive environment for most insurance buyers should continue into 2014. The exceptions and areas of volatility are the high-incident segments and clients with bushfire exposure.

There is an increasing trend in both the number of incidents and the average costs of claims in high-frequency liability segments such as retail and real estate. There is also a pronounced increase in contractor/labour hire workers’ compensation recovery actions. If this trend continues, insurers will look to increase premiums/deductibles in these industry segments.

Insurers are cautious regarding bushfire liability and continue to monitor their aggregate exposures in certain sectors such as utilities, government, and contractors involved in the industry.

It is anticipated that traditional insurers of these risks will offer less capacity. There is replacement capacity available, but this capacity may not be as competitively priced.

Business continues to return to the Australian market from London due to competition and multinational program requirements. The London market’s role is increasingly being restricted to complex risks.

The number of insurers with the ability to underwrite and administer global programs from Australia has increased substantially in recent years. This is bringing more competition to this segment of the market, which historically has been underserviced.

CONTACT:

STEvE GOSNELLHead of Casualty – placement Services – Southern Region +61 3 9603 2268 [email protected]

The above represents the typical rate change at renewal for average/good risk profiles.


Workers’ coMpensation/eMploYers liaBilitYThe past year has seen a number of significant reforms to workers’ compensation schemes across the country, as state governments and regulators embark on wide-scale reviews of the efficiency and performance of their schemes.

state/territorY preMiUM variation UnderWritten/governMent controlled

AUSTRALIAN CAPITAL TERRITORY INCREASE 0% TO 10% GOvERNMENT CONTROLLED AND UNDERWRITTEN BY INSURERS

NEW SOUTH WALES DECREASE 5% TO 10% GOvERNMENT CONTROLLED AND AGENT ADMINISTERED

NORTHERN TERRITORY INCREASE 0% TO 10% GOvERNMENT CONTROLLED AND UNDERWRITTEN BY INSURERS

QUEENSLAND STABLE -5% TO +5% GOvERNMENT CONTROLLED AND ADMINISTERED

SOUTH AUSTRALIA STABLE -5% TO +5% GOvERNMENT CONTROLLED AND AGENT ADMINISTERED

TASMANIA INCREASE 10% TO 20% GOvERNMENT CONTROLLED AND UNDERWRITTEN BY INSURERS

vICTORIA STABLE -5% TO +5% GOvERNMENT CONTROLLED AND AGENT ADMINISTERED

WESTERN AUSTRALIA STABLE -5% TO +5% GOvERNMENT CONTROLLED AND UNDERWRITTEN BY INSURERS

National – Comcare

On 2 December 2013, the federal minister for employment announced that the government will lift the moratorium on private corporations seeking to become self-insurers under the commonwealth workers’ compensation scheme, Comcare. The moratorium was introduced in December 2007 under the former labor government. A number of major companies are expected to pursue Comcare as an alternative to their existing state-based arrangements.

Scheme Performance

Nearly all schemes across Australia delivered improved funding ratios in 2013 compared to the previous year, with the legislative reforms and rating changes having a profound impact. As an example, the impact of the 2012 legislative reforms in New South Wales contributed to a scheme turnaround from a $4 billion deficit position to a $309 million surplus in the space of two years.

Legislative changes are under way across Queensland and Western Australia that are following recent scheme reviews, with other states such as Northern Territory, South Australia, and Victoria expected to announce performance improvement initiatives in 2014.

With improved scheme performance, and after small but steady increases over recent years, workers' compensation rates are expected to stabilise in 2014, with decreases available for superior-performing client accounts.

CONTACT:

ROBERT PESETAprincipal, Workforce Strategies+61 2 8864 [email protected]

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PROPERTY (CATASTROPHE-ExPOSED) DECREASE 0% TO 10% INCREASE 0% TO 10%

PROPERTY (NON-CATASTROPHE-ExPOSED) DECREASE 10% TO 20% STABLE -5% TO +5%

Should market capacity increase again in 2014, rates may even dip below those enjoyed prior to 2001.

Premium rates were not the only area of improvement offered in 2013. In many cases, expanded policy coverage was available, and it improved upon the onerous conditions (sublimits and deductibles) imposed following the catastrophe events in Queensland, New Zealand, Thailand, and Japan.

Not all industry sectors have benefited from improved market conditions. Industries such as power and mining have continued to deliver losses to the local and global markets. Consequently, market capacity has actually reduced slightly. This, combined with low insurer appetite for these industries, has resulted in a difficult market from a pricing and coverage perspective. For these clients, London and European markets continue to be influential program participants.

The year 2013 was one where the economic dynamic of supply and demand tipped firmly in favour of the insurance buyer. Despite this change and the general decline in market pricing, many insurers posted healthy profits. The competition

was much less intense for micro SME and domestic insurance; in fact, insurers were able to achieve reasonable premium increases in these portfolio sectors. The profit results also benefited greatly from a benign weather season, resulting in a lower number of catastrophic events, which were also less severe in consequence.

Looking ahead, intense competition is expected to continue in 2014. In the first half of 2014, clients may benefit more as there could be some “catch up” on rate reductions, as the size of the reductions for clients actually increased in the last half of 2013. However, once again, it will be those clients that have continued to improve their risk profiles through enhancements to risk management processes and procedures, adherence to risk recommendations, and close supervision of claims activity that will position themselves for the greatest benefit.

CONTACT:

MARK MITCHELLSenior Vice president, placement Services +61 2 8864 8376 [email protected]

Market Commentary Following a year of heightened insurer sensitivity to catastrophe exposures, 2013 proved to be a very different market environment, driven fundamentally by record levels of capacity. Although some established local insurers substantially increased their capacity, clients also benefited from a strong developing interest in Australian business by insurers in China, Japan, and Singapore.

Although the heightened level of interest from the Asian markets was initially limited to certain industry segments and specific client parameters, there was a broadening of appetite as the year progressed, and this is expected to develop further in 2014.

A review of 2013 placement results across industry segments indicates average reductions of 10% were achieved; however, the reductions were much higher for certain low-risk , high-profile clients that were remarketed last year. It would appear that rates for certain industry segments, such as real estate and infrastructure, are now beginning to challenge those offered prior to September 2001.

property





DIRECTORS AND OFFICERS (D&O) LIABILITY DECREASE 0% TO 10% STABLE -5% TO +5%

PROFESSIONAL LIABILITY DECREASE 0% TO 10% STABLE -5% TO +5%

FINANCIAL INSTITUTIONS INCREASE 0% TO 10% INCREASE 20% TO 30%

MEDICAL MALPRACTICE STABLE -5% TO +5% STABLE -5% TO +5%

proFessional liaBilitYStrong competition developed in the market in the third and fourth quarters of 2013 for low-to medium-risk professions. Not only was there downward movement in premiums, insurers began to offer expanded policy coverage to differentiate their product.

Although the London market is still active, particularly for the complex professions, Australian insurers have driven the intensity of price competition in an attempt to further build or solidify portfolio critical mass.

There has been a lack of infrastructure and resource developments due to the economic slowdown and various government elections, resulting in less demand for construction-project-specific policies. There is an expectation this will change during 2014.

Market Commentary

d&o liaBilitYIn 2013, there was an increase in the overall supply of capacity to the commercial D&O liability market from both local and overseas insurers. This increase resulted in ongoing general market softness for clients with strong risk management and a good claims record. Competition was especially strong in higher-level excess placements.

A further sign of an improving market for buyers is insurers offering long-term agreements, as well as direct or round-the-clock reinstatements.

There has been increased claims activity for Side C (entity security cover). In an attempt to offset this trend insurers are seeking to raise retentions (in lieu of premiums).

Major risk issues for insurers include:

ȫ Merger, acquisition, and divestiture activity.

ȫ Liquidity issues.

ȫ Re-evaluation of assets or write- down risk.

ȫ Major cost-cutting initiatives.

ȫ Restructuring of debt, particularly with US exposures.

Financial and professional Services


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Some professions, including financial planners, valuers, and real estate agents with a large percentage of property management activities, still face challenging market conditions. No easing is expected for these sectors in the short term.

A range of new insurer product suites was seen in 2013, along with a growing discussion on issues such as privacy, cyber, and network security. Many clients are taking the opportunity to review and/or rationalise their first and third party risks covered by professional liability and commercial crime policies.

Financial institUtions In the second half of 2013, the market for major financial institutions saw increases slow or stabilise. This trend is expected to continue during 2014.

Insurers that would otherwise look to rate increases are strongly encouraging clients to take higher deductibles. Capacity continues to be tightly controlled, with most insurers capping limits in the A$10 million to A$15 million range, which is considerably different than the A$20 million to A$25 million limits traditionally seen a few years ago.

Mid-cap and smaller financial institutions, particularly those with minimal retail exposures, are now being pursued by insurers. This increased appetite and competition is expected to limit or potentially drive competitive premiums in this sector of the market during 2014.

Medical MalpracticeSeveral Australian insurers have an increased appetite and offered additional capacity for small/midsize clients in the health care sector. This trend is expected to create modest pressure on pricing during 2014. As with most classes, buyers need to demonstrate a comprehensive risk management strategy, and specifically for malpractice claims, independently audited claims data. The global lack of appetite for clinical trials and maternity coverage continues to be a challenge in the marketplace.

CONTACT:

PAUL DUCATNational Manager, FINpRO (placement Services) +61 2 8864 7656 [email protected]

insurance Markets BY sPecialtY (australia)

11 Aviation

12 Employee Benefits

13 Environmental

14 Marine Cargo

15 Trade Credit

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Aviation

Market Commentary Capacity remains plentiful in the Pacific region with general aviation and regional airline fleet clients buying smaller limits. There is intense competition between local insurers, resulting in substantial premium discounts for clients in this segment of the market. The situation is similar for aerospace risks (regional airports, ground service providers, and maintenance, repair, and overhaul [MRO]).

The major review criteria by insurers is claims activity, limits purchased, international exposures, operational risks, and self-insured retentions.

Major aerospace clients such as major airports and MROs are purchasing large limits of liability, but are still best placed with the specialised UK insurers. Discounts of approximately 25% were achieved with international insurers during 2013. Market conditions are expected to remain very favourable for buyers during 2014.

CONTACT:

DOUG WILLIAMSONNational Manager, Aviation +61 7 3115 4579 [email protected]



GENERAL AvIATION DECREASE 10% TO 25% DECREASE 0% TO 15%





HEALTH INCREASE 0% TO 10% INCREASE 0% TO 10%

LIFE INCREASE 10% TO 20% STABLE -5% TO +5%

ACCIDENT AND HEALTH STABLE -5% TO +5% STABLE -5% TO +5%

cost-mitigation strategies, including advice on benefit design and more rigorous risk management, particularly in relation to claims.

accident and healthAn extremely healthy market exists, with most carriers offering products directly or through agency providers. Competition is strong across the market and premiums remain competitive as a result. It is interesting to note that whilst some direct markets have withdrawn from new business activity, other insurers are looking to reinvigorate their personal accident portfolio. This trend has been evident for some time and, whilst it continues, aggressive pricing and favourable policy terms and conditions will be available.

Insurers remain selective on the nature of risk they will underwrite. However, there is a greater inclination to secure enterprise agreement income protection risks predominantly covering “blue and heavy blue collar” workforces across industries that were previously hard-to-place risks.

CONTACT:

MARK BUTSONManaging principal, Employee Benefits+61 3 9603 [email protected]

Market Commentary

healthDomestic health insurance is a controlled environment in Australia, with the government limiting the number of insurers in the marketplace. Despite this restriction, adequate competition exists for individuals or corporations that require coverage. Both Australia and New Zealand provide a basic public health system, which citizens and permanent residents can access.

The Australian health minister has signed off on a weighted average rate increase of 6.2% effective 1 April 2014, which is well above the rate of inflation. This represents the largest rate increase since 2005 and it is anticipated that citizens will look to soften this increase by reducing coverage, or even potentially cancelling cover. Corporate-subsidised plans will also come under pressure, with premium subsidisation potentially being capped.

Expatriate health claims continue to increase in accordance with increasing medical treatment and well above the consumer price index (CPI) of

most countries. This will result in insurers taking a cautious approach to poor-performing client accounts, compelling employers to increase pressure upon expatriates to accept a greater responsibility for premiums and increased deductible/co-payments.

liFeIn Australia, rates are hardening for life, total and permanent disablement, and salary continuance insurances. This effect is due to a combination of factors, including insurer/reinsurer losses on claims from large industry superannuation schemes, new capital requirements for life insurers, and low-investment returns on insurer funds. Insurers are being more selective about the risks that they will consider. Despite the deteriorating market, insurers are still keen to maintain market share.

It is anticipated that this market correction will continue throughout 2014 as premium rate guarantees for polices progressively expire. This, in combination with reduced market capacity, especially for disablement covers, means that clients are seeking

Employee Benefits


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ENvIRONMENTAL (vARIOUS) DECREASE 0% TO 10% DECREASE 0% TO 10%

Market Commentary The environmental market remains very competitive in the Pacific region, mainly due to the significant increased capacity offered by insurers. In addition, there were a number of new market entrants competing for market share and chasing premium pool in a limited client market.

In 2013, clients were generally offered better coverage as part of their renewal process, in addition to competitive pricing.

The buyer's market has not expanded to levels anticipated by insurers. Therefore, insurers are offering very attractive long-term premium agreements for new buyers.

CONTACT:

LIONEL MINTZAsia pacific Manager, Environmental practice +61 2 8864 8213 [email protected]

Environmental





MARINE CARGO (vARIOUS) DECREASE 0% TO 10% DECREASE 0% TO 10%

Market Commentary The marine cargo insurance market in Australia remains competitive. There is ample capacity for large risks with insurers competing aggressively for good quality cargo risks. The significant slowdown in development of new resource projects has affected project cargo and delayed start-up premium income into the market. There is also a knock-on effect regarding those sectors servicing the mining and construction industry. Consequently, in an attempt to reduce exposure to boom or bust cycles of project cargo, insurers are now concentrating on developing small and medium enterprise (SME) cargo portfolios where they can write business as cost effectively as possible.

Specialty cargo businesses incorporating inherent vice risks such as bulk oil, frozen/chilled meat, and steel are written selectively by a relatively small number of insurers. These types of clients require a high degree of risk management. Although there is competition in this space, premium terms are essentially risk and claims driven.

Marine Cargo

CONTACT:

JAMES METTERSManaging principal, Marine+61 2 8864 [email protected]


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WHOLE TURNOvER CREDIT (AUSTRALIA-WIDE) DECREASE 0% TO 10% DECREASE 0% TO 15%

STRUCTURED CREDIT (AUSTRALIA-WIDE) STABLE -5% TO +5% STABLE

Market Commentary Australia continues to be an interesting, if limited, market for whole of turnover credit insurance, restricted to just four main insurers: QBE, Atradius, Euler Hermes, and Coface.

Despite the shortage of insurers, competition between them remained fierce in 2013 and is likely to continue in the short term. Reduced rates are expected, as is maintenance of high levels of buyer risk cover. This is a welcome prospect for both existing clients and prospective clients, especially as insolvencies in Australia continue to climb year-on-year (around 15,000 so far, according to Australian Securities and Investment Commission [ASIC] figures).

Innovation will be the flavour of 2014 from the top four trade credit insurers. More sophisticated online client platforms, integrated debt collection solutions, and more fixed limits cover being offered are the developing trends in the market.

Trade Credit

RISK TRENDSThe worst-hit sectors were no different from recent years, with building and construction, electrical, manufacturing, timber, and steel all experiencing major claims activity. High-profile insolvencies were limited in 2013, which enabled insurers to keep rates competitive and cover high. However, there is a general feeling that it could only take two or three larger collapses to force one of the big four to break rank and use this to reverse the trend of low rates.

There are a handful of structured credit insurers available to Australian buyers. They generally limit their offerings to large single one-off lines, or on single or very limited buyer portfolios. This cover tends to be available only on larger investment-grade and country risks.

These insurers continue to be careful but competitive given the very selective nature of the product and, therefore, rates remain stable for this cover. The number of insurers is expected to grow in 2014, with new entrants seeking to capitalise on the current improved returns.

CONTACT:

DEAN JENKINSprincipal, Trade Credit & political Risk +61 02 8864 7652 [email protected]


otHer Markets

17 New Zealand

19 Papa New Guinea

21 Fiji

23 Multinationals

24 Captives

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market share, balanced against the post-Canterbury earthquakes revised underwriting criteria.

In the larger corporate space, the local insurance market is doing its best to attract clients back from overseas insurers, as well as competing heavily to retain all of their existing portfolios against attack from local competition.

For clients that have active risk management and a positive risk profile, this is providing great leverage in creating competitive tension, which in turn has resulted in some significant premium-cost reductions.



GENERAL LIABILITY STABLE -5% TO +5% STABLE -5% TO +5%

MOTOR/AUTOMOTIvE STABLE -5% TO +5% STABLE -5% TO +5%

PROPERTY (CATASTROPHE-ExPOSED) DECREASE 0% TO 10% INCREASE 0% TO 20%

PROPERTY (NON-CATASTROPHE-ExPOSED) DECREASE 0% TO 10% INCREASE 0% TO 20%

ENvIRONMENTAL (vARIOUS) STABLE -5% TO +5% STABLE -5% TO +5%

DIRECTORS AND OFFICERS (D&O) LIABILITY STABLE -5% TO +5% STABLE -5% TO +5%

FINANCIAL INSTITUTIONS INCREASE 0% TO 10% INCREASE 0% TO 10%

PROFESSIONAL LIABILITY STABLE -5% TO +5% STABLE -5% TO +5%


HEALTH INCREASE 0% TO 10% INCREASE 0% TO 10%

LIFE STABLE -5% TO +5% STABLE -5% TO +5%


Market Commentary

general liaBilitYThe general liability market in New Zealand will remain stable into 2014 due to the continued high levels of capacity available. In the future, regulatory changes in occupational health and safety may result in increased employer obligations to employees.

Motor/aUtoMotiveThe motor market remains stable, which is predominately driven by claims experience. However, premium relief is available to those clients who are investing in fleet risk management programs.

propertYThe New Zealand property insurance market for 2014 will remain a challenge for some and provide a good-news story for others, depending on individual risk profile and size of business.

This is due to a number of factors, including the returning competition from local insurers to retain or increase

New Zealand



Conversely, small and medium enterprises (SMEs), or those suffering from seismic-strength building challenges, are still finding the market challenging.

Local insurers are pushing for increases in premium, although with a well-defined placement strategy, improved results are certainly achievable.

d&o liaBilitY In a result which may not find favour with many insureds, the New Zealand Supreme Court has issued its decision in the Steigrad proceedings.2 The ruling is that a statutory charge “freezes” all the proceeds of any insurance available (in this case D&O liability insurance) to meet the insured’s liability for damages or compensation, where a third party’s claim against them exceeds the limit of insurance. This means that combining defence costs and third party compensation/damages cover in a single limit of liability leaves insureds potentially without access to their defence costs cover.

Pending legislative change or a further New Zealand Court decision on whether insurers are obliged to advance defence costs, it is recommended that clients should maintain ring-fenced defence costs cover under their liability policies, or seriously consider doing so if they have not already.

proFessional liaBilitYThe professional liability market is seen as stable to softening due to the emergence of new capacity (predominately via Lloyd’s of London) with very little legacy claims costs arriving in the region. This is driving competition between insurers that wish to retain their market share locally.

Marine cargoThis is a highly competitive cargo market in which insurers are known to provide continuous policy-wording enhancements.

CONTACT:

NATHAN RICHMONDSenior Vice president, placement Services+64 9 928 [email protected]

2 BFSL 2007 Ltd & Ors (in liq) v Steigrad [2013]

NZSC 156.

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GENERAL LIABILITY INCREASE 0% TO 10% STABLE -5% TO +5%

MOTOR/AUTOMOTIvE STABLE -5% TO +5% INCREASE 0% TO 10%

PROPERTY (CATASTROPHE-ExPOSED) INCREASE 0% TO 15% INCREASE 0% TO 20%

PROPERTY (NON-CATASTROPHE-ExPOSED) INCREASE 0% TO 15% INCREASE 0% TO 15%

ENvIRONMENTAL (vARIOUS) STABLE -5% TO +5% STABLE -5% TO +5%

DIRECTORS AND OFFICERS (D&O) LIABILITY STABLE -5% TO +5% STABLE -5% TO +5%

FINANCIAL INSTITUTIONS STABLE -5% TO +5% STABLE -5% TO +5%



HEALTH STABLE -5% TO +5% STABLE -5% TO +5%

LIFE STABLE -5% TO +5% STABLE -5% TO +5%


Market Commentary

papua New Guinea

Papua New Guinea is an “admitted” insurance market and, therefore, all insurance placements with any Papua New Guinea exposure must be offered to local licensed insurers.

Although it is possible to obtain an exemption to this rule by arranging for offshore placements, it is a lengthy process. However, since last year’s election, greater pressure is being applied by the regulator (insurance commissioner) to support local insurers, as well as local reinsurance placements. As a result, exemptions are not easily achievable.

Motor/aUtoMoBileThe motor market remains stable and is predominately driven by loss experience. Fleet risk management programs and driver usage controls are potential rate discount factors.

Premiums are relatively high due to vehicle and parts costs, poor road conditions, and lack of safety awareness.

propertYThere have been a number of sizable fire claims during 2013, particularly in Lae and outer regions. Therefore, clients are vulnerable to potential rate increases and/or increased deductibles in 2014.

Good fire protection and housekeeping will greatly assist in achieving nominal increases.

liaBilitYPremiums remain very low for this class of insurance, as there are still no significant litigation awards adversely affecting claims experience.



Financial and proFessional services (d&o and proFessional liaBilitY)Competitive premiums continue to be available.

Marine cargoAll insurers are keen to underwrite this class, and competition has kept premiums from increasing.

MedicalThis is also a very competitive market, with claims service of the utmost importance. Adequate limits need to be considered for Medivac coverage, which is recommended for executives.

Workers’ coMpensationThis is legislated compulsory cover providing full medical costs, but very limited capital and weekly salary benefits.

Alternative placement structures, such as claims-adjusted programs, are available for major commercial clients. Implementing risk and claims management programs will assist in reducing premium costs.

Salary continuance and personal accident/life cover should be considered for executives.

CONTACT:

GRAEME MURRAYExecutive Director – Marsh Ltd pNGNational Broking Operations+675 309 [email protected]

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FijiINSURANCE MARKET CONDITIONS


GENERAL LIABILITY STABLE -5% TO +5% STABLE -5% TO +5%

MOTOR/AUTOMOTIvE INCREASE 0% TO 10% INCREASE 10-20 %

WORKERS’ COMPENSATION INCREASE 0% TO 10% STABLE -5% TO +5%

PROPERTY (CATASTROPHE-ExPOSED) INCREASE 10% TO 20% INCREASE 5-10 %

PROPERTY (NON-CATASTROPHE-ExPOSED) STABLE -5% TO +5% STABLE -5% TO +5%

D&O LIABILITY INCREASE 0% TO 10% STABLE -5% TO +5%

FINANCIAL INSTITUTIONS INCREASE 0% TO 10% STABLE -5% TO +5%


MEDICAL INCREASE 20% TO 30% INCREASE 10-20 %

MARINE CARGO (vARIOUS) STABLE -5% TO +5% STABLE -5% TO +5%

Market Commentary

general liaBilitYFiji has a stable general liability market and this is not expected to change in 2014. Policies issued locally are subject to local jurisdiction and, with these restrictions, premiums have remained stable.

Motor/aUtoMoBileAs with general liability, the motor vehicle market is stable and expected to remain this way in 2014. Rate increases generally apply to policy holders affected during the 2012 floods and cyclones and those with a poor claims record.

Workers’ coMpensationThe market for this class of business is stable, and it is one of the more acceptable classes of business by insurers, except for workers in a high-risk category. Common-law liability claims are rare.

propertYThe current state of the market remains very challenging for buyers seeking to secure flood insurance in Fiji. Floods pose a significant threat to a number of locations within the major islands (Viti Levu and Vanua Levu), but full and adequate flood insurance is not available.

There are very limited offshore markets interested in writing Fiji business due to the catastrophe exposures.

For clients with significant asset values, or where the nature of the business attracts limited capacity within the local insurance market, the London market plays an important role. For catastrophe perils, premium rates are dictated by loss experience and reinsurance costs.



proFessional liaBilitYAs with D&O liability, there is only one local insurer that is able to write this risk. Insurance is usually driven by clients having to comply with contractual requirements. As with other professional liability policies, terms are usually dictated by offshore market forces. All professional liability policies (including D&O liability) now attract stamp duty charges at a rate of 15% of the premium. These policies were previously exempt.

Medical This is not an attractive business for insurers in Fiji due to the rising cost of medical treatment both locally and overseas. Of the seven local insurers, four of them provide medical insurance. The bulk of the claims relate to evacuation abroad for treatment due to lack of facilities in the local hospitals. Premiums are dictated by claims experience and offshore treatment costs.

Marine cargoThere is no significant change in marine cargo, although the stamp duty charges are now 10% of the total premium, compared previously to 0.10% of the total insured value for exports only.

CONTACT:

DANIEL YEEDirector/Country Head + 67 9 322 7300 [email protected]

Financial And Professional Services

d&o liaBilitYQBE is the only local insurer that can write professional liability, including D&O liability. A lot of reliance is, therefore, placed on New Zealand and Australian insurers for this cover. There is a relatively small D&O liability portfolio in Fiji; awareness of D&O liability is increasing, however, due to the recent introduction of the crimes decree and, more significantly, the proposed 2013 Companies (Amendment) Decree, which is expected to be gazetted in 2014. As a result, local company directors will have to adhere to a range of new requirements. Directors will be required to meet higher levels of disclosure, transparency, and accountability in relation to their conduct. The legislation will bring Fiji in line with international best practice. This means that the tightening regulatory regime is likely to see clients review their exposures.

Financial institUtionsAgain, with the growing awareness regarding transparency, accountability, and consumer rights, the demand for this policy is expected to grow in 2014, albeit at a moderate pace.

23Marsh


Market CommentaryThe recovery of the Asia-Pacific insurance market, following the series of catastrophic events in 2011 and improved balance sheet strength of multinational insurers, continues to provide competitive insurance capacity in the multinational sector. This, combined with the ongoing strategic focus of insurers to develop and expand multinational insurance capabilities as a means of securing access to international clients, provides a broader platform for generation of competitive tension, with an increasing number of insurer options.

The strategic focus of multinational insurers also brings advancement of system infrastructure capabilities to provide client- and broker-facing technology to assist with management of global programs, including capabilities supporting knowledge sharing of regulatory environments, and policy management to streamline and aggregate program information across international borders.

MultinationalsRISK TRENDS

D&O LiabilityAs a result of more rigorous scrutiny by regulators and trends towards global expansion, directors and officers may become more exposed to litigation in another country, with local legislation potentially inhibiting or prohibiting indemnification.

As a result, global D&O insurance programs are becoming more sophisticated to ensure compliance with prevailing local regulations, and provide the requisite cross-border protection required by directors and officers. This trend towards multinational solutions for financial risks follows the well-established culture that exists in the traditional property and casualty segments, and global insurers continue to develop strategies and capabilities in this area.

Employee BenefitsIncreasingly, global organisations are seeking to harmonise or streamline employee benefit arrangements, as well as seeking solutions towards a more cohesive global employee benefit platform.

Multinational pooling of employee benefit risk presents an opportunity for organisations not only to provide more efficient and cost-effective solutions, but also to provide a more consistent and cohesive control mechanism for employee risk. This, with an increasingly transient workforce,

provides organisations with a potential competitive advantage in securing and maintaining the workforce with “employer of choice” credentials.

Emerging RiskCyber and environmental risk remain at the forefront of challenges that exist within the multinational segment, as insurers continue to investigate and develop products that are compatible with global organisations.

In addition, through the continued emergence of the global marketplace, relaxation of import regulations, and growth into new insurers, product liability and supply chain risks continue to provide challenges to the multinational segment.

CONTACT:

MARC CLEMENTSMultinational practice LeaderSenior Vice president+612 8864 [email protected]



Market CommentaryCaptives have formed an integral part of the risk-financing strategy of many companies in the Pacific region for several decades. Captives have been utilised to manage premium volatility over an insurance market cycle, and can be particularly effective in harder market conditions.

In general terms, favourable market conditions in recent years have reduced the effectiveness of captives, as the low level of risk transfer costs makes it less attractive to retain risk. However, captives continue to be more effective in complex industries where the ability to transfer risks to the insurance market is limited, or remains relatively expensive.

One of the key benefits of utilising a captive as part of an overall risk-financing strategy is its flexibility, as market conditions vary from one year to the next.

It is generally expected that if favourable market conditions continue in 2014, clients will retain less risk and buy more reinsurance, as it remains more cost effective to transfer risk.

CaptivesRISK TRENDSThe Pacific region has a relatively mature captive market. Singapore is the most popular domicile for the Pacific region. There is also reasonable representation in other captive domiciles such as Bermuda or Guernsey. We would expect captive incorporations in 2014 to continue to be concentrated in Singapore due to its stable regulatory regime.

Risks currently underwritten by captives in the Pacific region are mainly focussed on property and, to a lesser extent, casualty. Access to reinsurers continues to be a key driver for existing captives and this is expected to continue into 2014.

CONTACT:

CHRIS MCGUINNESSSenior Vice president, Captive Solutions+61 3 9603 [email protected]

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