A robust supply of capital in the local insurance market has limited the potential for higher rate increases except for buyers that have sustained heavy losses, according to a new report published by Marsh. The insurance market is in a state of transition, with mixed renewal results in both the large corporate and mid-size segments of the market, notes the latest edition of Marsh’s Insurance Market Review.

Geoff Ferguson, Regional Director of Market Relationship Management at Marsh, said that the experience of the June quarter renewals was heavily dependent on several key factors, including an aggregate exposure to national catastrophe perils and recent loss history.

“Insurers have made a clear distinction between accounts with no exposure to natural catastrophe perils and a relatively clean claims history, and those that have suffered recent losses. Overall, there were only modest signs of upwards pressure on rates but underwriters have clearly turned their attention to managing aggregate exposure and seeking rate increases from business that have suffered large losses.

“The market has coped very well in the face of this unprecedented stream of loss events. We have seen no signs of capital depression and, certainly in the short term, there is ample capacity for most risks and product lines,” said Mr Ferguson.

Within Marsh’s large corporate and middle-market portfolio, property insurance renewals for businesses with exposures produced outcomes ranging from no change to rate increases of up to 7.5%. This contrasted with the experience of large corporate buyers with catastrophe exposures such as flood, cyclone, bushfire and windstorm – which were met with increases of between 7.5% and 20%. Significantly higher rate increases were registered in cases of adverse loss history, especially for business located in Queensland or those with losses over $10 million.

The report points to more severe conditions in the New Zealand market, with a shortage of capacity placing an evident strain on insurers and their claim funding abilities. Rate increases of between 10% and 30% for small to mid-size corporates were the norm while larger corporate accounts experienced increases of between 10% and 40%. There was also significantly reduced appetite from insurers to take on new customers, especially those with assets located within earthquake-prone zones.

Marsh believes that market conditions for property insurance in the second half of 2011 will be affected primarily by the global market environment, with any further global catastrophe losses, combined with the availability of catastrophe reinsurance protection to local insurers, having considerable influence on the domestic market.

“Looking ahead, factors like increased reinsurance costs and increased retentions for property treaty reinsurance programs combined with recent large losses in the US may affect competition in the local market but the surplus of capacity suggests it is unlikely local carriers will be passing on the full extent of their increase in reinsurance costs to buyers,” Mr Ferguson added.