Market change is blowing in the winds

It was all going too well really; a benign hurricane season, roaring investment markets and plenty of merger and acquisition activity meant that insurers' pockets were well and truly lined. Never mind some pesky credit crunch, it was just a blip - a rebalancing of the US property index. It would soon blow over and, anyway, it served the US banks right for giving mortgages to people that didn't have a chance of paying them back. "It won't affect us," claimed the investment managers, "we don't have any exposure to any of that - we're much too professional to have fallen into that trap."

Those sentiments were expressed six months ago, before the full impact of US-collateralised debt securitisation had fully sunk in and the global impact had become apparent. Far from being a US phenomenon, irresponsible lending was arguably embraced just as wholeheartedly by British banks, the consequences of which we are now all-too-fully aware. Added to the lending misery, the pound has dropped significantly against both the dollar and the euro while the cost of raw materials, particularly steel and oil, has skyrocketed.

So, what does all this mean for the UK insurance industry? Well firstly, as we are beginning to see, insurers' investment portfolios have taken a hammering. The other side of this coin - the double whammy from the market fall - is that the size of insurers' pension liabilities has increased dramatically too, adding to their profit and loss woes.

And what about the rest of us, the smallest of oil molecules that help to lubricate the global insurance engine? I will whisper this and I'm not getting too excited because we certainly haven't seen any evidence of it yet - but sometime soon we should start to see the market hardening as economic reality forces insurers' hands to price for underwriting profit. How much and how quickly is still open for debate, but storms like Ike and Josephine lurking in the Atlantic certainly have the potential to ramp up the pace. As reinsurers meet in Monte Carlo this week, there will be plenty of sweating behind the bluster and bravado.