Seeds of a Hard Market

Posted by Richard Jacobson

Seeds of a Hard MarketThe Japanese saga playing out before our eyes is first and foremost a human tragedy that reminds all of us of the fragility of our lives and livelihoods. Here at Jacobson, we are praying for the best outcome for the survivors.

Early estimates of insured damages are notoriously rough and so must be taken as intended: with wide margins of error. We do know that the final numbers will be large. Coupled with the catastrophe response costs of other recent events (Christchurch most recently), most insiders are predicting a turn in reinsurance pricing in the near future. What does this mean for the rest of the industry?

While each market is independent, they are all connected to the overall industry currents. Clearly, the property market will be impacted most directly. Aside from steep losses, the recent catastrophes may result in increased demand for property coverage. More broadly, at some point, either market or central bank induced, U.S. and other tier 1 sovereign interest rates will rise. When they do, the impacts on the cost and availability of capital could be significant. We may be seeing the seeds of the first broad-based hard market in quite a while.