Cost of Risk Rose by 5% Last Year for US Corporates

The average total cost of risk (TCOR) for US corporates increased in 2012, climbing 5% in contrast to a rise of only 1.7% in 2011 and driven largely by firming market conditions, according to the Risk Management Society (RIMS).

The annual
RIMS Benchmark Survey
for 2013, produced in partnership with Advisen and based on more than 52,000 insurance programmes from almost 1,500 organisations, found that the average TCOR for all companies rose from US$10.19 per US$1,000 of revenue to US$10.70 per US$1,000 of revenue in 2012 as market conditions hardened. The contribution of property premiums to average TCOR grew nearly 6%, from US$2.92 per US$1,000 of revenue to US$3.09 per US$1,000 of revenue.

A review of Advisen’s umbrella / excess pricing and limit data showed that pricing influences excess insurance programme limit buying trends. When prices were dropping, insurance buyers tended to increase their limits more and when they were increasing, they tended to increase their limits less.

“While 2012 experienced a reduction in insured catastrophe losses, insurers continued to implement rate increases through the year” said Jim Blinn, executive vice president of Advisen’s information and analytics unit and executive editor of the survey. “Continued pressure on underwriting results and a low interest rate environment motivated underwriting management to seek these higher rates.”

“Rates are rising, but our research shows that improving rates attract new capacity, which makes it difficult to sustain the trend towards progressively higher rates,” said RIMS board director Michael Phillipus.  “The wealth of information available in the
RIMS Benchmark Survey
arms risk practitioners with powerful industry insight that can help shape their understanding of the market and allow them to fulfil their responsibilities with greater confidence and clarity.” 

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