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Rates for London insurance market to soften further in 2016

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Double-digit rate reductions may continue to vex the London market’s insurers and reinsurers, according to a report from PricewaterhouseCoopers L.L.P. released Friday.

According to its London Market 2016 Outlook report, for which the firm contacted over 30 London market participants, rates could be down 10% or more for some lines.

“As insurers approach the 1 January 2016 renewal season, PwC’s research shows a number of London Market participants anticipate further premium rate reductions of greater than 10% across some lines,” said PwC in the report.

In the energy sector, historically low oil prices have lowered drilling activity and thus demand for insurance cover.

“For the energy classes, the experience has been particularly acute for property-related covers with actual risk adjusted rate reductions of 15% across onshore and offshore risks in 2015 — despite a number of large losses in the offshore sector during the year,” PricewaterhouseCoopers said.

Property reinsurance rates may have even further to fall.

“Within property reinsurance, talk of rates ‘bottoming out’ earlier in 2015 appear to have been premature,” said the report.

Meanwhile, casualty offers a less-than-perfect alternative.

“The pressure on rates in the property reinsurance and energy classes is forcing some reinsurers to redeploy capital towards casualty reinsurance despite anticipated average risk-adjusted rate reductions in this sector of 7% in 2016,” said the report.

Accident and health will be the least hard hit.

“For the third year in succession, the accident and health sector appears to be the most resilient against rate reductions, with a market average rate reduction of only 1% anticipated in 2016,” said the report.

“It is clear we are in the depths of a soft cycle when an average year will see a loss for many, the pace of rate softening increasing, broker facilities commonplace and questions raised on casualty reserves,” Jerome Kirk, PricewaterhouseCooper’s London Market actuarial leader, said in a statement.