Although I have been told of some tentative signs of premium rates stabilising recently, they have been falling across most wholesale lines for around a decade now. For example, Guy Carpenter’s Global Property Catastrophe Rate-On-Line Index has reduced by more than a third since its peak in 2006. Our market survey earlier this year found further year-on-year declines (Chart 1). Looking at the possible causes of the current soft market, it is surely in part just another manifestation of the wider low return environment. The most obvious evidence is the inflow of capital to the market from institutional investors. Perhaps to a greater extent than historically, insurance is interconnected with wider capital markets and market forces have driven expected returns more into line with other investment opportunities. These wider pressures may explain a squeeze on profits. But insurers should still be pricing to cover their view of risk. At the beginning of 2016 we carried out a survey that captured views on the rate adequacy of new and renewed business. The results suggested that the estimated rate adequacy of new business is, in most cases, higher than renewed business. Whist this may reflect what many insurers tell us – that they only want to grow in segments that they believe are adequately priced; another interpretation is that some insurers are being overly optimistic on risks for which they have no or limited historical claims data and which previous risk carriers have declined as they no longer believe them to be adequately priced.

First, underwriting: we expect Boards to be relentlessly inquisitive in understanding and challenging the effectiveness of underwriting controls, pricing trends, exposure changes and rate adequacy in order to make informed decisions, and provide meaningful challenge, to the business. Fundamentally, the Board should seek evidence that underwriters are maintaining appropriate discipline. Second, reserving: a robust approach to the setting of reserves and appropriate and adequate oversight of the reserving process is vital. We expect Boards to demonstrate independent challenge of key issues, material uncertainties and significant assumptions in the reserves and the rationale for their choice of booked reserves. Third, reinsurance: we expect Boards to ensure that the economic impact of the reinsurance transaction is appropriately reflected in business plans, capital setting and reserving; and to be alive to the wider risks to which reinsurance placements can give rise. This includes  2  BIS central bankers’ speeches  ensuring the total risk and uncertainty over the claims run off has been captured in your risk management system and considered within your ORSA. Fourth, capital: we expect Boards to ensure that firms assessment of risk and capital requirements remain valid in this challenging trading environment. The new System of Governance requirements under Solvency II and the Senior Insurance Managers Regime are timely additions to the insurance regulatory regime, ensuring that clear expectations are being set as to the strength of systems and controls, and that there is clarity as to the roles and responsibilities of senior managers in firms.