When I arrived in the UK in October 1990, the Bank of England base rate was 14.5%. Most Property and Casualty insurance companies and brokers made, and even planned for, an underwriting or operating loss but enjoyed relatively handsome profits resulting from investment returns. They operated in a comparatively benign regulatory environment and they both also benefitted from the underwriting cycle and the prospect of a harder rating environment with some regularity over time.  How times have changed!

As this analysis illustrates, we are in a sustained period of declining rates in most classes globally with the exception of the Pacific region.  Soft rates have been caused by weaker economic conditions, a relatively benign (particularly catastrophe) claims environment but also of course by the flood of capital.  New Insurance capital continues to be  fuelled by poor investment returns in other sectors and by the significant growth in and flexibility afforded by the Insurance Linked Securities (ILS) market.  More recent types of investors like Sovereign Wealth Funds, Mutuals and Pension Funds typically have a longer term view and enormous balance sheets.  They are not only seeking higher investment returns but also uncorrelated risk which will still remain attractive once interest rates return to "normal".  

It may well be too early to call the Death of the Hard Market but all this suggests that a soft rating environment will be with us for some time to come!  What is certain is that with a sustained soft rating environment and interest rates at an historic low, Property and Casualty Insurers and brokers need to embrace operating and indemnity cost efficiency, enhanced risk selection with the use of Big Data and innovation afforded by new disruptive technologies