Rates continue to weaken

Despite the prospect of massive claims and possible collapse of US and other companies insuring bonds, bank loans and various financial instruments, the downward trend in premium rates is continuing in most classes of business. UK insurer Advent Capital says last month’s renewal season brought a further overall decline of six per cent in rates amid fiercely competitive conditions.

It is not only a matter of rates. The pressure (hard to resist when it comes from valued corporate clients) is on for insurers to reduce or even eliminate deductibles (the initial minimum of damage expenses that customers must pay themselves) and to offer ‘multi-year cover’, where one year’s premium buys the client more than one year’s insurance protection.

Ironically, some of the more nimble insurers have managed to make money out of the credit crunch. A case in point is Fairfax Financial, the Canadian insurance group, which recently revealed it had made nearly £600 million on credit default swaps tied to US financial groups and bond insurers. Chief executive Prem Watsa says the group started making bets against parts of the credit market in late 2003 and early 2004.