Pacfic Insurance Market Report 2015 - Oliver Wyman · INSURANCE MARKET REPORT 2015. 2 INSURANCE MARKET REPORT 2015 Contents 4 1 EXECUTIVE SUMMARY 13 Aviation 14 Employee Benefits

MARSH RISK MANAGEMENT RESEARCH

FEBRUARY 2015

MARKET PERSPECTIVE

PACIFICINSURANCE MARKET REPORT 2015

2 INSURANCE MARKET REPORT 2015

Contents

4EXECUTIVE SUMMARY1

13 Aviation

14 Employee Benefits

16 Environmental

17 Marine Cargo

18 Multinationals

19 Trade Credit

INSURANCE MARKETS BY SPECIALTY (AUSTRALIA)12

21 New Zealand

24 Papua New Guinea

26 Fiji

OTHER MARKETS205 Casualty

9 Property

10 Financial and Professional Services

MAJOR COVERAGE LINES (AUSTRALIA)

1MARSH

EXECUTIVE SUMMARYThe intense competition in the insurance market continued in 2014, with insurers’ profits increasing despite commercial premium reductions. Fewer catastrophic losses have ensured that the market has remained profitable. This holds true for the entire Pacific region. The Australian insurance market reported profits of A$4.52 billion for the year ended 30 June 2014, a post-global-financial-crisis record.1 This is an increase of 8.3% over the previous year and these attractive returns are bringing more capacity to the market, fuelling even greater competition for 2015.

The declining Australian dollar presents a double-edged sword for our markets, with foreign-owned insurers reporting lower premiums and profits as a result of the US dollar’s devaluation; conversely, this could increase capacity in the market as most reinsurers’ capacity is calculated in US dollars. We do not anticipate that this trend will impact the insurance market in the short term but it should be considered.

1 Australian Prudential Regulation Authority, "General Insurance Supplementary Statistical Tables," available

at http://www.apra.gov.au/GI/Publications/Documents/1412-GIILS-June-2014.pdf, accessed June 2014.


MARKET OVERVIEW

Australia ȫ The competition in the property market intensified in 2014, with rate reductions extending to all industry segments. The reductions were more pronounced for larger risks, as insurers competed for premium accounts to meet top-line growth targets. The signs for buyers in 2015 are positive once again, as we expect rates to continue to decline as a result of increased capacity, leading to increased competition among insurers.

ȫ The complex risk areas of energy, mining, and power are still heavily influenced by global market trends and capacity. The market improved for these industries in 2014, and we expect the softening conditions to accelerate modestly in 2015.

ȫ The decade-long decline in liability premiums continued in 2014, and is almost certain to maintain a similar pattern in 2015. Larger accounts experienced the greatest premium reductions, with many long-established client/underwriter relationships changing. Several accounts were repatriated from the UK market, as the Australian market began to compete by offering broader policy coverage and better terms and conditions. There have been new market entrants in Australia and the UK in 2015, which will ensure competition remains strong for most industries. Insurers are still showing caution with retail/real estate risks, and there remains limited capacity for bushfire exposures.

ȫ The directors and officers (D&O) liability market continues to improve with cautious optimism. Class action lawsuits are still an issue, and several high-profile cases are affecting insurer’s profitability. Despite these losses and some economic uncertainty, insurers are still competing aggressively for new business. As a result, the 2015 outlook for insurance buyers is positive.

ȫ The workers’ compensation markets are both state-controlled and private. The state-controlled schemes are reducing rates as a result of improved surpluses (the NSW scheme surplus is now A$2.5 billion). Conversely, those states with risks underwritten in the private market are seeing some premium increases due to poor loss experience. A significant development in 2014 was the lifting of the moratorium by the federal government for private companies to become self-insured under the Comcare scheme.

New Zealand ȫ Property rates declined significantly in 2014 in the major client segment. However, reductions for midsize and small and medium enterprise (SME) clients were not as pronounced. In order to gain a competitive advantage, many insurers were offering coverage enhancements and lower policy deductibles. There are expectations for further premium rate reductions in 2015.

ȫ The Health & Safety Reform Bill, which takes effect April 2015, requires greater oversight on the part of senior management and directors to ensure the health and safety of their workers.

Papua New Guinea (PNG) ȫ Following the election in 2014, the PNG Insurance Commissioner is providing more support to the local PNG insurance market. As a result, exemptions for offshore placements will be more difficult to achieve. The local market, whilst small in number of insurers, remains competitive; we expect this to continue in 2015.

Fiji ȫ New entrants to the Fiji market have increased competition. Rates for most classes of insurance (except medical) declined in 2014, and these reductions should continue in 2015.

Market Summary ȫ The Pacific region remains a buyer’s market, with competition at an all-time high. Favourable catastrophe loss experience both locally and globally continues to result in market profitability, and insurers remain competitive as a result. This trend is increasing insurer’s appetite for top-line growth, which is the key dynamic for the current competition.

ȫ The reinsurance market continues to attract capital from non-traditional sources, like pension funds and high-net-worth trusts, due to superior returns. As a result, increased competition among reinsurers has meant lower costs of reinsurance for direct insurers, and these savings are then passed on to buyers.

ȫ Merger and acquisition (M&A) activity increased in 2014. Locally, the market observed IAG’s acquisition of Wesfarmers’ underwriting operations while, on the global front, the start of 2015 has already seen the announcement of XL acquisition of Catlin and the proposed merger between Bermuda-based players, Axis and Partner Re. There is likely to be more M&A activity throughout 2015.

MAJOR COVERAGE LINES (AUSTRALIA)

5 Casualty

9 Property

10 Financial and Professional Services

5MARSH

INSURANCE MARKET CONDITIONS

COVERAGE RATE CHANGE Q4 2014 RATE CHANGE Q4 2013

GENERAL LIABILITY DECREASE 10% TO 20% DECREASE 0% TO 10%

MOTOR/AUTOMOBILE STABLE -5% TO +5% DECREASE 0% TO 10%

WORKERS' COMPENSATION STABLE -5% TO +5% STABLE -5% TO +5%

MOTOR/AUTOMOBILECompetition in the motor vehicle segment remained strong during 2014. It was a profitable year for the majority of commercial motor insurers, primarily due to benign weather conditions across Australia, with the exception of the recent Brisbane hail storms.

The competitive market has led to underwriting margins diminishing in comparison to 2013, as insurers look to defend existing accounts while attempting to grow their portfolios by targeting new business with attractive risk profiles. Results for corporate clients with well-managed motor fleets saw reductions averaging 5%.

As margins tighten, insurers are more focused on controlling and reducing expenses, primarily claims costs through investing in efficient repair networks and claims processing procedures. A number of insurers are capitalising on the digital age, developing mobile device “apps” to assist with streamlining the claims lodgment and repair process.

The outlook for 2015 remains much the same as 2014, with strong competition expected across the commercial motor portfolios, particularly for strongly risk-managed accounts that show an improving claims experience. However, insurers will maintain a watchful eye on any major weather events that impact the overall portfolio performance.

CONTACT:

SCOTT GREUTERNational Manager, Liability & Motor Risks Marsh & McLennan Agency +61 2 8864 8372 [email protected]

Casualty

Market Commentary

GENERAL LIABILITYThe casualty market has continued to offer favorable and competitive buying conditions for clients, and we expect this environment to remain throughout 2015.

In 2014, there was heightened competition between new market entrants and existing insurers looking to grow their market share in this class of insurance. This was more pronounced in the large corporate and risk management segment where premium reductions and coverage enhancements were commonplace, with many clients electing to change insurers to take advantage of such offerings.

Insurers continued to be cautious when underwriting certain industry segments; bushfire-exposed risks such as utilities, government, and contractors engaged in those industries had insurers stringently monitoring their aggregate exposure and deployment of capacity. Insurers also looked to increase retail property owners’ premiums where high-frequency claims have increased over the last five to seven years, in an attempt to offset the expected future poor claims development.

Over the past year, business was repatriated from the European markets in greater numbers. The rationale for business returning to Australia has been mixed, ranging from the competitive nature of the local market, through to mergers and acquisitions of Australian businesses. Notwithstanding these switches in choice of insurers, there has been little change to buying patterns such as policy limits and deductibles.

With greater capacity destined to flow into the local market in 2015, the majority of insurance buyers will continue to be spoilt for choice with alternatives. Therefore, important considerations such as underwriting experience, claims service performance, policy coverage, and ability of the insurer to accommodate changing client requirements should be included in client decisions.

CONTACT:

GARY MOLAM Senior Broking Executive+61 2 8864 8766 [email protected]

The above represents the typical rate change at renewal for average/good risk profiles.


WORKERS’ COMPENSATION/EMPLOYERS LIABILITYThe rapid rate of reforms to workers' compensation schemes over the past three years has been unprecedented. Changes in government at federal and state levels have prompted wide-scale reviews of scheme performance and, in the case of South Australia, and Northern Territory, 2015 will mark the most significant reforms in those schemes’ history.

STATE/TERRITORY PREMIUM VARIATION GOVERNMENT CONTROLLED/UNDERWRITTEN

AUSTRALIAN CAPITAL TERRITORY INCREASE 0% TO 10% GOVERNMENT CONTROLLED AND UNDERWRITTEN BY INSURERS

NEW SOUTH WALES DECREASE 0% TO 10% GOVERNMENT CONTROLLED AND AGENT ADMINISTERED

NORTHERN TERRITORY INCREASE 0% TO 10% GOVERNMENT CONTROLLED AND UNDERWRITTEN BY INSURERS

QUEENSLAND STABLE -5% TO +5% GOVERNMENT CONTROLLED AND ADMINISTERED

SOUTH AUSTRALIA DECREASE 0% TO 10% GOVERNMENT CONTROLLED AND AGENT ADMINISTERED

TASMANIA INCREASE 0% TO 10% GOVERNMENT CONTROLLED AND UNDERWRITTEN BY INSURERS

VICTORIA STABLE -5% TO +5% GOVERNMENT CONTROLLED AND AGENT ADMINISTERED

WESTERN AUSTRALIA STABLE -5% TO +5% GOVERNMENT CONTROLLED AND UNDERWRITTEN BY INSURERS

As of 1 January 2015, the number of agents operating under the NSW WorkCover scheme has been reduced from seven to five. Xchanging and Gallagher Bassett were not offered a contract renewal and their combined market share (approximately 17%) has been reallocated to two other agents. The resulting changes are that:

ȫ Gallagher Bassett portfolio will move to Allianz.

ȫ Xchanging’s portfolio will move to Employers Mutual.

ȫ QBE’s market share reduction of 5% will be reallocated to GIO.

Policies that were impacted by this from 30 December 2014 will be transferred to the new agent upon renewal, with all new claims from that date becoming the responsibility of the new agent. The reallocation of existing claims is expected to take place between May and September 2015.

NATIONAL – COMCAREOn 2 December 2013, the federal minister for employment announced that the government would lift the moratorium on private corporations seeking to become self-insurers under the commonwealth workers’ compensation scheme, Comcare. A number of major companies have started looking at the feasibility of pursuing Comcare as an alternative to their existing state-based arrangements.

On 28 November 2014, the Safety, Rehabilitation and Compensation Amendment Bill passed through Federal Parliament virtually unchallenged. The amendment now allows companies with operations in multiple jurisdictions in Australia to explore Comcare as a viable workers’ compensation alternative for the first time in seven years, with a number of applications for entry already with Comcare for determination (pending the Bill being passed). Major companies can now, in theory, operate a single set of work health

safety regulations across Australia and, if accepted into Comcare, apply the same approach for their workers’ compensation arrangements. Significant changes were introduced to the application and license review process for both applicants and Comcare by the regulator. Other amendments include the removal of cover for recess claims and for injuries arising out of serious or wilful misconduct.

MANAGED-FUND SCHEMES

New South Wales (NSW)

New South Wales has continued to experience strong financial results with its scheme increasing its surplus to A$2.5 billion. This is due to a combination of decreased claim numbers (down 25% since the 2012 reform) and strong investment returns.


7MARSH

Victoria

The Victorian scheme continues to perform well and this is reflected in its 2014/15 average premium rate of 1.272%, the second lowest rate in Australia behind Queensland at 1.20%. The 1.272% represents a 2% rate reduction from the 2013/14 average premium.

The 2014/15 period saw the early distribution of premium notices to July 2014, and an increase to the premium discount from 3% to 5% if the annual payment were made by 1 August 2014. The 3% discount was still offered for payment in full by 1 October 2014.

Queensland (QLD)

The Queensland scheme provides employers with Australia’s lowest average premium rate of 1.20%, a reduction of more than 17% when compared to 2013/14 (1.45%). Queensland is the only centrally funded scheme with a funding ratio in excess of 120%.

WorkCover QLD introduced a simplified premium model for employers who pay less than A$1.5 million in wages. This model came into effect on 1 July 2014 and is designed to provide rate stability for those employers by capping the annual variances in premium rates by 10%.

Large employers (those paying annual wages in excess of A$1.5 million) will continue to have their premiums calculated on the Experience Based Rating system, which is dependent on industry classification, claims experience, and wages experience.

South Australia

Despite slight improvement in South Australia’s financial position, WorkCover SA continues to be one of the poorest performing schemes in Australia with respect to premium rates and funding ratio. WorkCover SA announced in October 2014 that the scheme’s funding ratio had improved 7.3% to 71. The average premium rate of 2.75% is almost double that of the other managed fund states (VIC, NSW, QLD). The South Australian government acknowledged that the current system needed to be reformed and on 30 October 2014, passed legislation to rehaul the scheme, which will be fully funded by 2016, and result in a reduction of premium rates from 1.50% to 2.00%. The Return to Work Act 2014 will come into effect on 1 July 2015.

The key changes include:

ȫ WorkCover Corporation South Australia to be renamed as the Return to Work Corporation South Australia.

ȫ Income maintenance for 0-52 weeks will be 100% of weekly earnings, 53-104 will be 80% of weekly earnings, and income maintenance will cease after 104 weeks for many injured workers.

ȫ Medical and similar benefits will discontinue 12 months after income maintenance ceases.

ȫ Secondary injury claims will be deemed as new claims and therefore, premium will be impacted.

ȫ Common law will be accessible to those who are seriously injured in cases where the employer is deemed to be negligent.

PRIVATELY UNDERWRITTEN SCHEMES

Western Australia

In April 2014, WorkCover WA released the Recommended Premium Rates for 2014/15, which came into effect on 30 June 2014. The average recommended rate saw a reduction from 1.668% in 2013/14 to 1.556%. This represents a rate reduction of 6.7% and the third rate decrease in as many years. The scheme’s actuary, PricewaterhouseCoopers, took into account the broader economic factors, including movement in interest rates and wages, as well as the claims experience provided by insurers. Many of the insurers were somewhat surprised by the large overall reduction. Western Australia is currently not experiencing the wage growth that recent years have delivered, a factor likely to place pressure on further rate reductions for 2015/16.

WorkCover WA has approved the drafting of a bill to replace the current Workers’ Compensation and Injury Management Act 1981. The intention of this bill is not to amend or review the existing benefits and entitlements for injured workers, but to make the act a clearer one to understand and administer. Confirmation of the timing of the new bill has not been announced.


Northern Territory

In July 2014, the Workers Rehabilitation and Compensation Advisory Council’s review of the NT Workers Rehabilitation and Compensation Act was released and proposed the following key changes:

ȫ Capping on income maintenance at five years for non-seriously injured workers (presently operates as a pension scheme).

ȫ Capping on medical and like benefits at six years (seriously injured workers excluded from proposed cap).

ȫ Journey claims to be removed.

ȫ Heart attacks and strokes to be excluded unless significantly work related.

ȫ Increase in death benefits.

These proposed changes, if introduced, are expected to take effect on 1 July 2015. The intent of the reforms is to mitigate significant premium rate increases across the scheme.

November 2014 saw the Northern Territory Government pass legislation to sell Territory Insurance Office (TIO). From 1 January 2015, Allianz acquired TIO.

Australian Capital Territory

Finity Consulting undertook an actuarial review of the ACT Workers’ Compensation scheme in 2014.

Key findings of the review:

ȫ Projected wages of A$7.6 billion in 2014/15.

ȫ Total claims reported had reduced by 2.50%.

ȫ 500 lump sums paid – highest since 2003/04.

ȫ Settled common law damages claims up 50%, which was 12% higher than expected.

ȫ Claim payments increased by 12%, which was mainly driven by lump sum payments that were 26% higher than expected.

ȫ Medical costs were A$1.5 million lower than expected (9%).

ȫ Recommended average premium rate to be 2.46% of wages, up from 2.42% for 2013/14.

Tasmania

On 31 March 2014, Finity Consulting released its suggested Industry Premium Rates for the 2014/15 financial year. The key findings of this report showed:

ȫ An estimated average premium rate of 2.30% is required for 2014/15 – this represents a 2% proportional decrease compared to 2013/14.

ȫ Suggested rates across all of the industries (ANZSIC Classes) reflect substantial variation as they range from 0.46% to 9.83% of wages.

The Finity report highlights that, for a number of years, the insurers’ premium rates have been approximately 20% lower than their suggested premium rates – reflecting the competitive market that exists in Tasmania.

As this is a privately underwritten scheme, the financial performance of insurers in this state varies and, consequently, pricing across the insurers have shown considerable variation. Throughout 2014, our experience was that in many cases, small and medium enterprise (SME) policies were experiencing increases between 0% -10% on good-performing programs, while large policies continued to be experience rated.

CONTACT:

DAVID CLONAN Principal – Workforce Strategies – Workers' Compensation Placement+61 3 9603 2193 [email protected]

9MARSH



PROPERTY (CATASTROPHE-EXPOSED) DECREASE 10% TO 20% DECREASE 0% TO 10%

PROPERTY (NON-CATASTROPHE-EXPOSED) DECREASE 10% TO 20% DECREASE 10% TO 20%

have seen a shift in the placement of this business. In the past year, Asian underwriters have shown increasing interest in the Pacific region. In particular, the Chinese markets have been noted as being much more active this year and less stringent about account ownership composition. This has put both the Australian and European markets under additional pressure when it comes to maintaining market share.

As often observed in a competitive market cycle, insurers are now starting to offer enhanced coverage, lower deductibles, and long-term agreements (LTAs) as incentives for clients to remain with an incumbent, or as inducements to move to new insurers. Although these types of enhancements were observed towards the end of 2013, they were mainly limited to corrections where limits and deductibles were catastrophe specific, whereas now it is more relative to the everyday material damage and business interruption deductibles and coverage. These enhancements are still being provided in conjunction with reduced rates and therefore, can provide additional benefits to clients.

Looking ahead to 2015, it is hard to see any reason for change and the current competitive nature of the market can be expected to continue, while reinsurance pricing is likely to further decrease as additional capacity enters the market in early 2015. Those clients who have maintained a focus on risk management and capital/operational improvements will continue to receive the best terms and conditions from the market. With most accounts achieving such significant reductions in 2014, it remains to be seen if these will be possible on the same scale in 2015, and whether premium pool considerations will have an impact on insurers’ underwriting decisions. As ever, a well-structured and executed strategy, in combination with current and detailed renewal information, is crucial in achieving the best results in the renewal process.

CONTACT:

MARK MITCHELLSenior Vice President, Placement Services +61 2 8864 8376 [email protected]

Market Commentary The competitive dynamics that first seized the global property market in 2013 continued throughout 2014. With more than $600 billion in policyholder surplus, coupled with a benign catastrophe loss environment, the global market remains over capitalised and fiercely competitive.

These same drivers are recognised locally and, although rates continued to be put under pressure (on average SME -7.5%, Corporate -15%), the local market has maintained a profitable book as a result of subdued local loss activity. Retention has been the primary focus on most insurers; however, there is a huge emphasis of growth, which is driven by competition.

In an attempt to source “top-line” growth, a number of insurers have turned their attention to non-core industry segments, including mining, steel, power, and oil and gas. This has had the effect of driving price competition further and diminishing the segment premium pools. European markets continue to offer capacity on large and complex risks in these industry segments, combined with new local markets entering these segments, we

Property





DIRECTORS AND OFFICERS (D&O) LIABILITY DECREASE 0% TO 10% DECREASE 0% TO 10%

PROFESSIONAL LIABILITY DECREASE 0% TO 10% DECREASE 0% TO 10%

FINANCIAL INSTITUTIONS (FINPRO) STABLE -5% TO +5% INCREASE 0% TO 10%

MEDICAL MALPRACTICE STABLE -5% TO +5% STABLE -5% TO +5%

DIRECTORS AND OFFICERS LIABILITY Rates remained generally stable but an increase in local capacity from new entrants in Australia has resulted in a further softening of the market, particularly for excess layers.

Claims activity, especially side C (securities entity cover), appears to have stabilised in terms of frequency, despite a period of increased activity earlier in the year. High-profile claims, litigation funding, and subsequent class-action payments continue to heavily impact insurers’ profitability in this product class.

While insurers seek to manage overall portfolio profitability at a time when they face significant reserve increases, clients are confronted with significant premium fluctuations, especially when they have not had a long-term relationship with their insurers.

Market Commentary With concerns over elevated claims activity in this sector, insurers and reinsurers continued to treat financial institutions with caution.

Coupled with the potential for further economic uncertainty in 2015, the flagging of further reviews on capital requirements, and the seven-year statute of limitations anniversary looming from the global financial crisis, insurers remain guarded and pressured to increase their reserves due to past loss years. As a result, claims and notification history continue to be critical factors for insurers. This is especially evident in the wealth management sector and, to a lesser extent, banking and funds management arenas.

New class action suits on behalf of securities holders continue to develop. This brings ongoing pressure on the capacity and availability of D&O securities entity cover (side C cover) for financial institutions.

Although generally trending flat, the professional indemnity line could potentially experience rate increases. In cases where insurers are unable to obtain rate increases in their financial institution’s professional indemnity portfolios, they are alternatively seeking increased deductibles and/or tighter control on the limits and capacity provided on each risk. For these risks, we are not seeing the same level of premium adjustment by insurers as seen in previous years.

Clients with strong risk management protocols, that remain unaffected by wealth management, financial planning, and side C D&O exposures continue to be treated favourably by insurers.

Following a number of very public cyber and security breaches locally and overseas, many financial institution providers and service companies are taking advantage of increases in local and global capacity in cyber and network security products at exceptionally favourable terms.

Financial and Professional Services


11MARSH

In an effort to grow their portfolios, insurers have been trying to attract clients, offering further discounts on top of reductions already made to their standard pricing models. However, many clients have opted to invest in longer-term strategies over pure premium reductions, treating this as an opportunity to strengthen their relationships with key D&O insurers.

For SME management liability products, crime losses continue at a high but stable rate. However employment practices liability, statutory liability, and occupational health and safety claims are, according to insurers, trending upwards.

Insurers are taking steps to increase deductibles, where appropriate, or are actively encouraging proactive claims management to see that claims are resolved more quickly and economically.

PROFESSIONAL LIABILITY Soft market conditions continued in the last quarter of 2014. Insurers are reviewing the profitability of the accountancy, real estate/property managers, and general engineering professions, and focused on growing their portfolios in these segments.

Insurers continued to demonstrate a lack of interest for what they consider to be high-risk categories such as financial service providers (particularly financial planners) and property valuers, with cover being offered by an increasingly limited number of insurers. As a result, these insurers are requiring that clients provide significantly more detailed information and knowledge of their businesses and practices.

We continue to see flat or reduced premiums, particularly in the SME sector with 2015 expected to see insurers continue to compete for business based on pricing and enhanced policy coverage offerings.

"WE ARE NOT SEEING THE SAME LEVEL OF PREMIUM ADJUSTMENT BY INSURERS AS SEEN IN PREVIOUS YEARS."

MEDICAL MALPRACTICEAustralian insurers’ increased interest in small/midsize clients in the health care sector continues and they are joined by several offshore insurers offering cover via new binders to underwriting agencies. The modest pricing pressure that started in early 2014 continues, especially for private hospitals, however buyers still need to demonstrate comprehensive risk management strategies and, specifically for malpractice claims, independently audited claims data.

CONTACT:

PAUL DUCAT National Manager – FINPRO Placement Services +61 2 8864 7656 [email protected]

INSURANCE MARKETS BY SPECIALTY (AUSTRALIA)

13 Aviation

14 Employee Benefits

16 Environmental

17 Marine Cargo

18 Multinationals

19 Trade Credit

13MARSH

Aviation

Market Commentary The newsworthy global losses within the hull and liability market have not impacted overall rating as was widely anticipated, mainly due to oversupply of capacity which allows buyers to continue to benefit from a soft market. The experience was different in the hull war market, however, where the associated losses in that segment affected insurers more significantly. Yet even these losses have had minimal impact on the market, in general, with only marginal increases in the hull war premium rates incurred in the second half of 2014. We do, however, remain cautious that further increases may yet be imposed for this class of coverage.

With an eye to 2015, notwithstanding the erosion of premium in the global aviation market due to airline consolidations and diminishing rates, expectations are for continuing soft market conditions, particularly for global placements. Regionally, the effect continues to be minimal, with clients seeking to either enhance coverage or look for some added discounts for long-term policy agreements.

CONTACT:

DOUG WILLIAMSONNational Manager, Aviation +61 7 3115 4579 [email protected]



GENERAL AVIATION DECREASE 0% TO 10% DECREASE 10% TO 25%


"...CLIENTS [ARE] SEEKING TO EITHER ENHANCE COVERAGE OR LOOK FOR SOME ADDED DISCOUNTS FOR LONG-TERM POLICY AGREEMENTS."




HEALTH INCREASE 0% TO 10% INCREASE 0% TO 10%

LIFE INCREASE 20% TO 30% INCREASE 10% TO 20%

ACCIDENT AND HEALTH STABLE -5% TO +5% STABLE -5% TO +5%

The expatriate insurance market in Australia still remains competitive for well-performing accounts.

LIFEIn late 2014, the Australian market for group life insurance products, including group life, total and permanent disablement (TPD), and group salary continuance continued to experience rate increases. Increases of 20% to 40% are not common for disability insurance, particularly TPD and long-term spinal cord injury (SCI), and even as much as 70% to 100% for plans with poor claims experience. Higher premiums can be attributed to a number of factors, including insurers and reinsurers experiencing sizable losses from large industry superannuation schemes, and the ongoing capital requirements for life insurers.

In 2014, the market saw the exit of Zurich from the group life market, as well as a reduction in reinsurance capacity and appetite in Australia. This market correction in group life is expected to continue throughout 2015.

Despite the tightening market, the Australian group life insurers remain numerous and actively compete for new business. Clients are continuing to look for expertise in cost-mitigating strategies, as well as advice in benefits plan design. Both insurers and employers are employing more discipline with regard to early intervention on claims.

Market Commentary

HEALTHDomestic health insurance continues to operate within a regulated system in Australia, with the number of insurers participating in the market limited by the government. April 2014 saw the last of a series of Commonwealth legislative changes around health insurance rebates come into effect.

Under the changes, the government’s decision on rate changes to the health insurance rebate will now take into account the variation between the overall Australian Consumer Price Index (CPI) and the health insurance industry’s average premium increase. The resulting calculation will see the government rebate continue to decrease in 2015 and beyond. The subsequent increase in prices will place pressure on the affordability of health insurance for both corporate-subsidised plans, and individuals and families.

In addition to the rebate changes, the Australian health market continues to be impacted by the rising cost of medical inflation, as well as the increase and ongoing management of chronic disease.

November 2014 saw the sale of the government health fund, Medibank Private, representing Australia’s second largest public float on the Australian Stock Exchange.

In expatriate health, the value of claims continues to increase in accordance with rising medical treatment costs. The elevated costs are driven by higher-than-standard CPI, the impact of currency exchange, and a tangible increase in chronic condition-related claims.

The mix of factors at play has led to insurers taking a cautious approach to poor-performing accounts, both from an underwriting and rate perspective. Employers are being compelled by rising costs to pressure expatriate staff to accept a greater responsibility towards premiums and increased co-payments.

Employee Benefits


15MARSH

ACCIDENT AND HEALTHInsurers’ appetite for enlarging their personal accident and sickness insurance portfolios has meant competition remains strong and premiums competitive. In Australia, the trend remains for clients establishing a master policy to accommodate the often numerous personal accident policies taken out under multiple Enterprise Bargaining Agreements (EBAs). This has led to administrative efficiencies and cost savings through consolidated risks.

In addition to consolidation, reviews to provide corporates with transparency in terms of costs, as well as the identification of coverage gaps and unnecessary covers, remained strong.

While insurers remain selective on underwriting group life, there continues to be a strong desire to secure EBA risks covering predominantly "blue collar" and "heavy blue collar" workforces across multiple industries.

CONTACT:

SARAH BROWN Mercer Marsh BenefitsTM Leader – Pacific+61 3 9603 2189 [email protected]

"THE AUSTRALIAN HEALTH MARKET CONTINUES TO BE IMPACTED BY THE RISING COST OF MEDICAL INFLATION, AS WELL AS THE INCREASE AND ONGOING MANAGEMENT OF CHRONIC DISEASE."




ENVIRONMENTAL (VARIOUS) DECREASE 0% TO 10% DECREASE 0% TO 10%

Market Commentary While still very much a discretionary purchase, a wide range of businesses from ASX-listed and global companies, schools and hospitals, to government entities are now utilising environmental insurance as a financial strategy to mitigate their potential environmental operational risk.

New entrants to the environmental market have not only increased capacity in this specialty area but, through the offering of competitive terms and coverages in order to build their portfolios, have also generated reasonable competition amongst incumbent markets.

Notwithstanding market competition, some of the longstanding environmental insurers became a little more cautious during 2014 when underwriting policies in excess of five-year periods affecting premiums and coverage were offered.

Environmental


Several risk trends associated with the environmental liability insurance market were noted in 2014:

ȫ Due to numerous claims of “asbestos in soil during construction,” insurers began requiring more extensive data before offering cover for unknown conditions.

ȫ Recent Australian case law again focused the limited cover provided under a general liability policy for environmental damage, especially for the action of a regulator or other government entity, on the basis that they are not a third party.

In 2015, potential capacity growth is likely to fuel similar levels of competition and buying conditions.

CONTACT:

LIONEL MINTZAsia Pacific Manager, Environmental Practice +61 2 8864 8213 [email protected]

17MARSH



MARINE CARGO (VARIOUS) DECREASE 0% TO 10% DECREASE 0% TO 10%

Market Commentary The economic slowdown continued to dampen investment in new resource projects, negatively impacting buyer demand for project cargo and delayed start-up insurances. With capacity and appetite for large cargo risks remaining constant in the Australian market, this has led to insurers competing aggressively for available business with across-the-board premium reductions.

Those insurers previously focused on the mining and construction sectors are pursuing small and mid-sized cargo risks in an attempt to replace lost or diminished premium volume. Many insurers have developed new facilities to accommodate these lines, and by focusing on streamlining their processes they will be able to write a greater volume of business at lower costs.

Currently, there is a small but dedicated band of insurers still competing to write bespoke specialty cargo for commodities such as frozen and chilled meat and steel products, but a decrease in demand for this type of business has also been noted.

Marine Cargo

Compliance issues on global covers continue to be a challenge with the introduction and implementation of various regulations such as the US Foreign Account Tax Compliance Act (FATCA). The market awaits news as to the consequences emanating from the proposed amendments to the Marine Insurance Act (1906) through the Insurance Bill, introduced in the UK Parliament in July 2014. The Insurance Bill will be the most significant change to marine insurance in more than a century, notwithstanding previous reforms in areas such as duties of disclosure, warranties, and remedies for fraudulent claims.

If the bill receives Royal Assent before 30 March 2015, it is expected to come into effect in the first half of 2016, and is likely to prompt similar changes in Australia.

CONTACT:

JENNIE PAGE Principal - Marine Practice +61 2 8864 8606 [email protected]



INSURANCE MARKET CONDITIONS Market Commentary The multinational segment continues to be impacted by the downward trend in rates and soft market conditions globally, particularly in the property and general liability segment. Whilst still competitive, other casualty lines and the financial lines markets remain relatively stable.

The combination of balance-sheet strength of global insurers and absence of significant catastrophic events has created an increasingly favourable market environment for multinational organisations. In addition, the injection of substantial new capacity from insurers in Asia and Europe, supported by increasing flexibility for buyers to access global markets, demonstrates the value of multinational insurance platforms.

Insurers have their sights set on strategic geographic expansion into the Asia-Pacific region, which is providing further impetus to current market conditions, and these new markets (and their aggressive targets) are creating competitive tension in the multinational program segment.

With this broader competition, insurers continue to focus on the multinational client segment and are increasingly willing to commit long-term capacity at current suppressed market rates in order to secure longer-term participation.

Multinationals

RISK TRENDS

Regulatory ComplianceThe focus and rigour exercised by international regulators across insurance and tax requirements continues unabated, and compliance remains at the forefront of the insurance industry.

The US Foreign Account Tax Compliance Act (FATCA) was introduced in July 2014 as a means of preventing tax evasion through the use of offshore accounts, and this should have an impact on multinational programs. As a result, foreign financial institutions, including insurance companies and captives, will be required to register with the Internal Revenue Service for any transactions involving US entities.

EMERGING RISKAmidst the flurry of well-publicised cybersecurity and privacy breaches, multinational insurers are looking to aggressively develop and expand the existing market of cyber insurance products, as global organisations turn to insurance to protect themselves from rising cyber threats. This is particularly the case with first-party cyber coverage, designed to protect a client against the costs of rectifying or mitigating cyber breaches.

CONTACT:

MARC CLEMENTS Managing Principal – Multinational Practice+61 2 8864 8740 [email protected]

"INSURERS HAVE THEIR SIGHTS SET ON STRATEGIC GEOGRAPHIC EXPANSION INTO THE ASIA-PACIFIC REGION, WHICH IS PROVIDING FURTHER IMPETUS TO CURRENT MARKET CONDITIONS."

19MARSH



WHOLE TURNOVER CREDIT (AUSTRALIA-WIDE) DECREASE 5% TO 10% DECREASE 0% TO 10%

STRUCTURED CREDIT (AUSTRALIA-WIDE) DECREASE 5% TO 10% STABLE -5% TO +5%

Market Commentary Whole turnover trade credit insurance continues to be the focus for the Australian market. Market capacity remains constant with the four core insurers: QBE (Australia), Attradius, Euler Hermes, and Coface continuing to drive competition.

Large international placements have generated greater competition among insurers, resulting in a number of buyers electing to change insurers. Continuing low interest rates and the relatively low rate of insolvencies in Australia allowed the four major insurers to provide competitive rates, thereby maintaining a “buyer’s” market in Australia.

Overall, insolvency rates in 2014 failed to reach the earlier predicted record levels. Indications of potential 2015 insolvency rates should surface in early 2015, given that the highest insolvency activity historically occurs in December and January.

Trade Credit

RISK TRENDSAccording to Dunn & Bradstreet, the average time that Australian businesses typically take to pay their invoices has fallen to the lowest level since 2007 (pre-GFC levels), a further signal that operating conditions have strengthened in 2014 and the business sector’s cash position is improving.

In this class of insurance, the building and construction, electrical, manufacturing, timber and steel industries have had the highest claims activity. While the quantum of losses might be an annoyance to insurers, the lack of larger insolvencies across these sectors has allowed insurers to remain profitable.

The structured credit markets available in Australia continue to offer increasing capacity with the highest available syndicated line now approaching US$900 million. However, access to this capacity is still quite selective, with underwriters preferring the “blue chip” risks. Yet these same markets have reduced their pricing models, indicating even traditionally expensive markets are feeling the competition.

CONTACT:

DEAN JENKINSPrincipal – Trade Credit & Political Risk +61 02 8864 7652 [email protected]


OTHER MARKETS

21 New Zealand

24 Papa New Guinea

26 Fiji

21MARSH

GENERAL LIABILITYThe appetite in the New Zealand general liability market remains relatively stable albeit with some contraction in the construction and manufacturing space. Australian contractual requirements and growing worker-to-worker risk mean the placement of offshore risks is challenging at current rates. Australian capacity has a broader, more confident appetite in this area, which is expected to impact retention as we progress through 2015.

As previously mentioned, New Zealand is undertaking significant legislative reform, however it is too early to determine the impact on exemplary damages risk and underwriter appetite



GENERAL LIABILITY DECREASE O% TO 10% STABLE -5% TO +5%

MOTOR/AUTOMOTIVE STABLE -5% TO +5% STABLE -5% TO +5%

PROPERTY (CATASTROPHE-EXPOSED) DECREASE 10% TO 20% DECREASE 0% TO 10%

PROPERTY (NON-CATASTROPHE-EXPOSED) DECREASE 10% TO 20% DECREASE 0% TO 10%

ENVIRONMENTAL (VARIOUS) STABLE -5% TO +%5 STABLE -5% TO +5%

DIRECTORS AND OFFICERS (D&O) LIABILITY STABLE -5% TO +%5 STABLE -5% TO +5%

FINANCIAL INSTITUTIONS STABLE -5% TO +%5 INCREASE 0% TO 10%

PROFESSIONAL LIABILITY STABLE -5% TO +%5 STABLE -5% TO +5%

MARINE CARGO (VARIOUS) DECREASE O% TO 10% DECREASE 0% TO 10%

HEALTH INCREASE 0% TO 10% INCREASE 0% TO 10%

LIFE STABLE -5% TO +%5 STABLE -5% TO +5%

ACCIDENT AND HEALTH STABLE -5% TO +%5 STABLE -5% TO +5%

Market Commentary

HEALTH AND SAFETY REFORM BILLThe Health and Safety Reform Bill is a key piece of legislation affecting all workplaces, organisations, and individuals in New Zealand. It places greater requirements on governance and involvement from senior management and directors of companies to ensure the health and safety of all workers. The new legislation officially takes effect from April 2015. It is expected to bring an increase in penalties, possibly in line with Australia — A$600,000 fines for individuals and up to A$3,000,000 fines for corporate entities — and an increased likelihood of aggressive regulatory investigations and prosecutions.

SENTENCING AMENDMENT ACT 2014 From 6 December 2014, the Sentencing Act allows for uncapped victim reparation to be awarded for lost earnings not covered by the country’s Accident Compensation Corporation (ACC) in excess of previous capped thresholds. This new civil criminal liability is created by an offender being sentenced under the Sentencing Act. Classes of business expected to be affected are motor vehicle, general liability, statutory and other liability policies that provide cover against liability for injury to any person.

New Zealand



MOTOR / AUTOMOBILEThe motor market remains stable and is predominantly driven by claims experience. Premium relief is available to those clients who are investing in fleet risk management programs and demonstrate improved claims performance.

EMPLOYERS LIABILITYThe employers’ liability market remains flat. However, the impact of the health and safety legislation reform is not yet well understood and it remains to be seen whether markets will decide to include the coverage under the employers’ liability policy, or under the statutory liability portion of the policy.

STATUTORY LIABILITYThis market is flat to hardening with regard to rates and underwriter appetite. It remains to be seen how the market will respond to the updated health and safety legislation, as well as the Sentencing Amendment Act 2014. Increasingly, there is a demand from New Zealand businesses with an Australian footprint to secure statutory coverage in that territory.

PROPERTYNew Zealand property market conditions are expected to remain the same in 2015 as they were in 2014. Strong competition between insurers will continue to result in a softening of pricing and an increased availability in coverage. However, a double standard exists in the market, with significantly greater premium reductions being afforded to larger corporates, than small or mid-sized businesses.

Insurers and reinsurers continue to make steady progress paying out the commercial claims associated with the Canterbury earthquakes, with 70% to 80% of claims now settled. Those remaining are typically of a complex nature.

As the rebuilding and construction in Canterbury gains momentum, the insurance market continues to easily keep pace, with all major insurers having significant capacity and appetite available. The detail and quality of property submissions presented to underwriters remain critical to achieving competitive pricing and the broadest available coverage.

ENVIRONMENTALIncreasingly, cover for pollution risks is a stringent contractual requirement, particularly when dealing with government agencies. Health and safety changes are driving businesses to consider remediating their asbestos and pollution risks. Along with the growing contractual demand, there are several additional factors driving demand for pollution coverage, including pressures of reporting on pollution under the Resource Management Act (identified during the rebuilding of Christchurch), the growth of commercial development, and the investment in infrastructure in the Auckland region. Available markets to underwrite this class of insurance are limited and their appetite is inconsistent, but this is likely to change as more insurers focus their attention on writing environmental insurance.

DIRECTORS AND OFFICERS LIABILITYFor clients with low to moderate risk profiles, the market remains stable but insurers are likely to apply premium increases for high-risk clients. Several factors are front-of-mind for insurers, including legislative changes that place increasing demands on directors. Consequently, directors are taking a greater interest in and have a better technical understanding of their D&O coverage, prompting company boards to purchase increased limits and broader coverage.

FINANCIAL INSTITUTIONSThe market is relatively flat, but this should change during 2015 as the effects of the updated Financial Markets Authority, Commerce Act, Health and Safety Act, and the Bridgecorp decision begin to be collectively felt. Insurers are increasingly conservative on coverage offerings and are demanding a high degree of detail and transparency on underwriting submissions. Generally, higher-risk accounts are investigating and buying higher limits.

PROFESSIONAL LIABILITYClients with “weather tightness performance” exposures are beginning to see some pricing relief as the market’s stance on this issue softens. In addition, new entrants not subject to paying historic claims have joined the market fuelling further competition. With the continuing redevelopment in New Zealand, construction opportunities are being fiercely contested between local and non-local insurers.

23MARSH

MEDICAL MALPRACTICE LIABILITYThere remains limited appetite for this coverage in New Zealand, largely because of the role of the Accident Compensation Corporation (ACC), and there is an increasing awareness of liability with regard to clinical trials.

MARINE CARGONew Zealand has a competitive marine cargo market in which insurers are continuously looking to provide wording enhancements to clients, in addition to rate reductions.

HEALTH There are three major insurers in the group medical market who insure, via workplace groups, approximately 30% of employees in New Zealand. Within the past 12 months, Sovereign Insurance has re-entered the medical insurance market with a newly developed health product. They will not be offering a group program until mid-to-late 2015.

Overall, traditional premium increases have averaged 6%-7% over the past 10 years. However, as we move into 2015, these increases are now averaging 11%-14%, due to anticipated medical cost inflation and the expected cost of future claims (driven by the greater use of new technology). Rate increases for some clients have been capped at 8%-9%.

Terms and concessions in the group market are driven based upon modular programs integrating employer funding with additional modules typically paid for by the employee. This philosophy is unlikely to change in the group market.

LIFE The lump sum life insurance market remains stable. Premium savings can generally be realized by remarketing an account. However, some higher-risk occupations are becoming more difficult to insure for lump sum disability insurance, as a result of their costly claims experience, which has adversely affected insurers. The terms and conditions available in the market continue to improve for clients in respect of total and permanent disablement (TPD) coverage with reduced waiting periods, for example.

ACCIDENT AND HEALTH (DISABILITY) Premium rates remain stable although, remarketing can generate savings. In the current market, it is becoming more difficult to obtain coverage at expiring terms and conditions for higher-risk occupations, as a result of costly claims experience.

CYBER RISKA massive overhaul of the 1993 New Zealand Privacy Act is under way with over 130 recommendations being made by the Law Commissioner. There is currently no legal obligation in New Zealand to report any breach of privacy (although many companies trade or operate in territories that do) and, consequently, the cyber market has not seen much activity. Local cyber markets are limited to AIG, Zurich, Delta and Dual, with other local insurers showing no immediate interest in providing this class. The limited adoption of cyber insurance has generated a commercial market environment with competitive terms being seen on both schemes and corporate business. Until the market experiences significant claims development, we expect this trend to continue.

CONTACT:

NATHAN RICHMONDExecutive Director+64 9 928 3094 [email protected]

"THE LIMITED ADOPTION OF CYBER INSURANCE HAS GENERATED A COMMERCIAL MARKET ENVIRONMENT WITH COMPETITIVE TERMS BEING SEEN ON BOTH SCHEMES AND CORPORATE BUSINESS."




GENERAL LIABILITY STABLE -5% TO +5% INCREASE 0% TO 10%

MOTOR/AUTOMOTIVE STABLE -5% TO +5% STABLE -5% TO +5%

PROPERTY (CATASTROPHE-EXPOSED) INCREASE 0% TO 15% INCREASE 0% TO 15%

PROPERTY (NON-CATASTROPHE-EXPOSED) INCREASE 0% TO 15% INCREASE 0% TO 15%

ENVIRONMENTAL (VARIOUS) STABLE -5% TO +5% STABLE -5% TO +5%

DIRECTORS AND OFFICERS (D&O) LIABILITY STABLE -5% TO +5% STABLE -5% TO +5%

FINANCIAL INSTITUTIONS STABLE -5% TO +5% STABLE -5% TO +5%

PROFESSIONAL LIABILITY STABLE -5% TO +5% STABLE -5% TO +5%

MARINE CARGO (VARIOUS) DECREASE 0% TO 10% DECREASE 0% TO 10%

HEALTH STABLE -5% TO +5% STABLE -5% TO +5%

LIFE STABLE -5% TO +5% STABLE -5% TO +5%

ACCIDENT AND HEALTH STABLE -5% TO +5% STABLE -5% TO +5%

Papua New Guinea

Market Commentary Papua New Guinea (PNG) is an “admitted” insurance market and therefore, all insurance placements with any Papua New Guinea exposure must be offered to local licensed insurers in the first instance.

However, it is possible to obtain an exemption to this rule by arranging offshore placements through a lengthy process and, always subject to regulation approval.

In summary, rates for all classes of insurance have remained stable due to aggressive underwriting from the oversupplied local insurance market, but we do expect property rates to potentially increase.

MOTOR/AUTOMOBILE The motor market remains stable and is predominantly driven by loss experience. Fleet risk management programs and driver-usage controls are potential rate discount factors.

Premiums are relatively high due to vehicle and parts costs, poor road conditions, and lack of safety awareness.

PROPERTY Sizable fire claims have continued throughout PNG, so premium rate increases and/or increased deductibles are likely.

Clients with a focus on good risk practices, particularly fire protection, electrical circuitry, and housekeeping, could expect to achieve premium savings.


25MARSH

GENERAL LIABILITYPremiums remain very low for this class of insurance, as there are still no significant litigation awards adversely affecting claims experience.

FINANCIAL AND PROFESSIONAL SERVICES (D&O AND PROFESSIONAL LIABILITY)Competitive premiums continue to be available.

MARINE CARGOAll insurers are keen to underwrite this class, and competition has kept premiums from increasing.

MEDICALThis is also a very competitive market, with claims service of the utmost importance. Adequate limits need to be considered for Medivac coverage, which is recommended for executives.

WORKERS’ COMPENSATIONThis is legislated compulsory cover providing full medical costs, but very limited capital and weekly salary benefits.

Alternative placement structures, such as claims-adjusted programs, are available for major commercial clients. Implementing risk and claims management programs will assist in reducing premium costs.

Salary continuance and personal accident/life cover should be considered for executives.

CONTACT:

GRAEME MURRAYExecutive Director – Marsh PNGNational Broking Operations+675 309 [email protected]

"THE RATES FOR ALL CLASSES OF INSURANCE HAVE REMAINED STABLE DUE TO AGGRESSIVE UNDERWRITING FROM THE OVERSUPPLIED LOCAL INSURANCE MARKET."


FijiINSURANCE MARKET CONDITIONS


GENERAL LIABILITY DECREASE 2O% TO 30% STABLE -5% TO +5%

MOTOR/AUTOMOTIVE DECREASE OVER 30% INCREASE 0% TO 10%

PROPERTY (CATASTROPHE-EXPOSED) DECREASE 0% TO 10% INCREASE 10% TO 20%

PROPERTY (NON-CATASTROPHE-EXPOSED) DECREASE 10% TO 20% STABLE -5% TO +5%

DIRECTORS AND OFFICERS (D&O) LIABILITY DECREASE 10% TO 20% INCREASE 0% TO 10%

FINANCIAL INSTITUTIONS STABLE -5% TO +5% INCREASE 0% TO 10%

PROFESSIONAL LIABILITY STABLE -5% TO +5% STABLE -5% TO +5%

MARINE CARGO (VARIOUS) STABLE -5% TO +5% STABILE -5% TO +5%

WORKERS’ COMPENSATION STABLE -5% TO +5% INCREASE 0% TO 10%

MEDICAL INCREASE 0% TO 10% INCREASE 20% TO 30%

EMPLOYEE BENEFITS INCREASE 0% TO 10% STABLE -5% TO +5%

Market Commentary

GENERAL LIABILITYThe market has become competitive in terms of global placements. However, due to the increase in capacity created by Capital Insurance Group following its acquisition of local insurer, Dominion Insurance Ltd, clients with a good claims history and who have solid risk management practices in place experienced significant rate decreases. As long as competition persists in the market, rates will continue to decrease in 2015.

MOTOR/AUTOMOBILE With new insurers entering the Fiji market, overall rates have seen large reductions. However, due to the fact that this class of business is primarily claims driven, clients with a poor claims history have not been able to capitalise on the large rate reductions. As with the general liability market, as long as competition continues to drive the market, rates will continue to decrease into 2015.

WORKMEN’S COMPENSATION/EMPLOYERS LIABILITY (STABLE) There are current plans in place by the Ministry of Labour to review the 1975 Workmen’s Compensation Act. Due to uncertainties surrounding the effective date of the proposed amendments under the act, there has been no impact on the premiums as yet. Once the changes have been legislated, Fiji can expect to see premium increases that reflect the higher awards being proposed under the amendments.


27MARSH

FINANCIAL INSTITUTIONS Although financial lines capacity has increased in Fiji, underwriters remain very selective regarding the types of risks they are willing to write. Fewer insurers are choosing to write financial institutions, and this has kept rates stable.

PROFESSIONAL LIABILITY As with cover for financial institutions, the market is very selective and there is scarce appetite for this risk. Policies available in Fiji are usually very limited in cover and driven by the client having to comply with contractual requirements.

MEDICAL Medical malpractice liability cover for most of the practicing general practitioners in Fiji is written under a group scheme. General practitioners cannot legally practice without insurance cover. The premiums have increased in line with the overall claims experience, which experienced an increase in reported cases.

MARINE CARGO The marine cargo insurance market in Fiji remains stable. This class of business is mostly driven by the risk industry and claims history. Rate increases were observed for clients with high-loss ratios or higher-risk commodities such as frozen food.

EMPLOYEE BENEFITS Overseas and local medical costs are the main drivers of premium increases. As a result of patients having to be evacuated abroad for treatment due to a lack of facilities in local hospitals, insurers are facing higher claims costs. The other emerging cost burden has been a result of legislative changes requiring employers to broaden coverage for their employees.

PROPERTY In 2014, rates for catastrophe-exposed property decreased due to increased competition driven by new entrants into the market. Additionally, the country has seen no major natural disasters in 2014, which has also contributed to rate reductions.

Although most clients have seen moderate reductions in their premiums for non-catastrophic risks, those with good claims experience and solid risk management procedures in place were able to achieve greater premium reductions. Insurers are also appealing to clients by broadening coverage and lowering deductibles.

An increase in capacity triggered by the entry of Capital Insurance Group through local acquisition could potentially intensify the competition in the months ahead.

DIRECTORS AND OFFICERS (D&O) LIABILITY With a new regional insurer entering the market, the capacity for financial lines insurance in Fiji has increased. Certain clients have experienced rate reductions, but these reductions do not span across all industries as insurers have been discriminating in selecting the risks they decide to write. Generally, insurers are looking to underwrite risks for clients with stable cash flow and stringent financial governance, and tend to provide more competitive rates to these types of clients.

RISK TRENDSThe recent general elections have been followed by an increase in investor confidence and international support. This has resulted in a positive turn for the economy, which is expected to grow further as more overseas investments pour in along with the interest from overseas insurers who are now entering the Fiji market for the first time.

With parliamentary democracy now being restored, one item on the agenda for 2015 is the Company’s Decree 2013, which calls for a higher level of disclosure, transparency, and accountability from directors. This increased liability will require businesses to consider purchasing higher and broader limits. With the market broadening, premiums will most likely increase.

The Reserve Bank of Fiji is also looking at other reforms, including changes to insurer solvency and charges on reinsurance premium. These could potentially have an impact on premium in the longer term.

CONTACT:

DANIEL YEEDirector/Country Head – Marsh Fiji+679 322 7300 [email protected]


NOTES

About Marsh Marsh is a global leader in insurance broking and risk management. Marsh helps clients succeed by defining, designing, and delivering innovative industry-specific solutions that help them effectively manage risk. Marsh’s approximately 27,000 colleagues work together to serve clients in more than 130 countries. Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy, and people. With 57,000 colleagues worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; Mercer, a global leader in talent, health, retirement, and investment consulting; and Oliver Wyman, a global leader in management consulting. Follow Marsh on Twitter @MarshGlobal, or on LinkedIn, Facebook, and YouTube.

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