BOURNEMOUTH, England—U.K. risk managers likely will not see a dramatic uptick in insurance rates in the immediate future, barring a major catastrophe, a group of industry leaders said earlier this month.

But the panelists at the Assn. of Insurance & Risk Managers' Annual Conference 2011 in Bournemouth, England, said Solvency II likely would add pressure to increase rates and could lead to market consolidation.

“The market is on the cusp at the moment,” said Martin J. Sullivan, deputy chairman of London-based brokerage Willis Group Holdings P.L.C. While capacity remains abundant, he said catastrophe-exposed business around the world likely is seeing rate increases of about 5% to 10%.

Underwriters have the capacity and appetite for new business, which typically is underwritten for a lower rate than the incumbent insurer offers at renewal, Mr. Sullivan said.

While industrywide catastrophe losses of about $30 billion to $50 billion already this year are thought likely to be “an earnings event, not a capital event,” additional significant losses during the North Atlantic hurricane season could result in a “market change,” he said.

While tragic, earthquakes in New Zealand and Japan were not “galvanizing events” that changed the way underwriters perceive risk, said Tom Bolt, director of performance management at Lloyd's of London. They have, however, wiped out some of the excess catastrophe budgets of insurers and reinsurers, he said.

While underwriters may not be “seeking payback” for the recent natural catastrophe losses, “they maybe cannot afford to be as generous anymore” and are charging rates for coverage that more accurately reflect the underlying risk, Mr. Bolt said.

“There is still a great deal of surplus capital in the market that needs to be fed,” said Martin South, CEO of Marsh Inc.'s U.K. business in London. So rates are unlikely to harden rapidly in the short term.

He said, however, that some underwriters have strengthened their liability reserves, which can signal hardening rates in the future.

In the U.K. commercial insurance market, there is excess capital, said Adrian Brown, CEO of the U.K. arm of London-based RSA Insurance Group P.L.C. So unless there is a catastrophic event, any hardening is likely to be “gentle,” he said.

Many insurers likely are not meeting their return-on-capital targets and will begin to feel pressure to increase rates, Mr. Brown said.

On another capital-related front, Solvency II, Europe's risk-based capital regulatory regime slated for introduction in 2013, “almost certainly will change the market,” said RSA's Mr. Brown. “But we are a while away from that happening,” he said.

Large, sophisticated insurers and reinsurers likely have a good idea of how the rules will affect them, but smaller players—those whose business is most likely to be affected by the changes—may be waiting for the rules to be finalized before adjusting their business models, he said.

The upcoming rules may lead to consolidation among smaller insurers that struggle to cope with Solvency II's requirements, said Mr. Brown. “I'm not sure that is good news for buyers,” he said.

Mr. South agreed that Solvency II may be a “driver for consolidation.”

Compliance with Solvency II places a huge burden on staff and will be costly for the Lloyd's of London market as well, said Mr. Bolt. Compliance likely will cost the market about £250 million ($405.8 million) over three years, he noted.

Panelists, including Marsh's Mr. South, urged the insurance industry to come up with new ideas to meet insurance buyers' changing needs. He said the insurance industry emerged from the recent global financial crisis with its reputation intact and the industry's excess capital makes it a good time to develop new products.

The most recent innovations in coverage, in environmental and directors and officers liability insurance, were “triggered by the legal environment,” Mr. South said.

The world has changed, he said, with risks such as reputational issues and tsunamis like the one that hit Japan becoming of greater concern for risk managers.

“The premiums of the many pay for the claims of the few, so for insurers to develop new products, they need to know that there is demand out there,” Mr. South said.

“The insurance industry needs to listen more to our clients and respond to what keeps them awake at night and develop the products they need,” he added.