We've seen a few new market entrants over the past year, and there's another expected in Bermuda soon. That said, it hasn't been quite enough to turn the market yet. The extra capacity is welcome, though. It's helping to ease those upward rate trends a bit, and it's even helping some insurers to rebuild tower limits to what they could purchase a few years ago.
ALISHA BHUNDIA: I mean, it's interesting to hear what your market rates are looking like, because currently in the North American property space, we're seeing the market continue to soften, and rates are coming off faster than we anticipated.
POPPY LEGGE: To adapt the softening market, we're seeing carriers looking to quote longer stretches and bigger lines than they have historically on both new and renewal business, in order to compete with the aggressive domestic markets as we see growing competition on placements.
ALISHA BHUNDIA: We also haven't faced a big cat event in a few years, which usually changes the direction of the market. So our clients continue to make premium savings year on year due to the current market conditions. We work closely with our analytics team and receive weekly updates on current events and developments within the tropical weather systems. To date, this hurricane season remains relatively undestructive in the North American space.
KIRSTEN MONAGHAN: I think that's one of the key differentiators, what's driving our environments. When you look at US Casualty, it's clear that there's a lot of long-tail risk involved, which means it can take years for claims to fully play out and for the final cost to be known. Because of this, insurers and reinsurers are being cautious with their reserving and just generally taking a more conservative approach, which is pushing premiums higher. At the same time, we're seeing loss amounts and developments trending upwards. Medical and legal costs keep rising, so insurers are facing bigger bills right from the start.
On top of that, social inflation is having a real impact, jury awards are getting larger, and there's a very active plaintiff bar driving bigger settlements, often using litigation financing to push things further. Nuclear verdicts, which are those huge jury awards, used to be pretty rare, but they're now pretty much more common. And thermonuclear verdicts, which were almost unheard of five to 10 years ago, are starting to crop up more often, especially in areas like US auto, construction, and manufacturing.
We've been dealing with rate increases for around five or six years now in US Casualty, so we're constantly thinking about ways that we can help manage these increases. For example, we look at alternative structures to tackle loss inflation and rising costs, things like quota share retentions, swing plans, captive layering, buffer layers, and first loss corridors. It's about finding creative solutions to keep things manageable for our clients.
ALISHA BHUNDIA: Mm-hmm. And while US Casualty are obviously focused on helping clients manage ongoing rate increases with creative solutions, it's clear that the broken landscape itself in North American property has also shifted rapidly. This year more than ever, having a deeper understanding of risk is crucial. By combining our experience and structuring programs with fresh insights to emerging complexities, we're able to guide our clients through these challenges with confidence.
POPPY LEGGE: And these global shifts like the imposition of new tariffs means our clients are facing more uncertainty than ever. That's why it's so important to optimize their property insurance and make sure they're properly protected. Now at the same time, we're working with our Data and Analytics team, which we do on a day-to-day basis. And they track everything from weather events to emerging risks.
High-quality data enhances our understanding of certain perils, and location intelligence is being used to ensure our clients have the appropriate coverage in place. This highlights to our clients the importance of data quality and geocoding for both underwriters and our own internal data outputs to improve targeting and cost savings.
KIRSTEN MONAGHAN: And we're also partnering with our Data and Analytics team to offer clients more sophisticated options. This allows us to clearly define each client's risk profile and create tailored solutions based on modeling outputs so clients can see the real value of alternative structures.
Over the past couple of years, we've also developed innovative solutions for Structured Auto, Construction, and Lead Umbrella. With these, we've really taken time to build in coverage enhancements and competitive features, which can be tough to negotiate in a hard market, but these really do drive value for our clients.
ALISHA BHUNDIA: And our solutions also explore nontraditional routes of cover where their overlying programs cannot support. The Deductible Buydown Facility assists clients in obtaining a low deductible when their main program cannot facilitate them having one. This is an example of how we leverage our market expertise to obtain unique solutions for our clients.
KIRSTEN MONAGHAN: I think that's the true differentiator on both sides, is that we're working for our clients to gain more control over how they deploy their capital. We're giving them options backed by data to make an informed choice about where they want to retain or transfer risk.
Being a global broker truly sets us apart in the insurance marketplace, and the benefits for our clients are significant. As part of the Direct and Facultative Specialty within Willis, we're not just connected globally in name. We actively leverage our strong relationships across North America and Bermuda to deliver tangible value for our clients. This connectivity means that whether we're dealing with US Casualty or Property, our reach and influence has never been stronger.
ALISHA BHUNDIA: And our daily collaboration with our global hub in Bermuda is a great example of this. By working together, we're able to offer clients a unified approach to their programs, tapping into unique market appetites and providing tailored capacity solutions that might not be available elsewhere. This global teamwork ensures that our clients benefit from the best possible options, no matter where their risks are located.
POPPY LEGGE: Global support also brings consistency and a centralized service model, which allows us to negotiate better terms, premiums, and coverage limits. Clients often enjoy visiting our hubs and meeting the teams in person, which not only strengthens our relationships, but also gives them direct access to the expertise and resources that come with a truly international broker.
KIRSTEN MONAGHAN: Ultimately, by partnering with a global broker, clients gain access to a multi-national marketplace. This means that they benefit from local knowledge combined with global insights, helping us design and develop insurance programs to suit clients' needs.
Whether our clients are working with colleagues in London, the US, or Bermuda, they can expect the same high level of service and expertise. This global reach ensures that every client receives solutions that are both locally relevant and globally optimized, giving them confidence and flexibility in our ever-changing marketplaces.
VICTOR DE JAGER: Regarding the European market, the softening trend continues, and it seems to be progressing even more. There's pressure on price due to competition and enough capacity in the market. Besides the pressure on pricing, we see also more flexibility around terms and conditions, which gives an opportunity to increase or renegotiate back certain limits, which might have been removed from coverage in the hardening market.
However, there are, of course, still areas that need attention. Nat Cat, supply chain, political environment, impact of tariffs, as mentioned in our previous videos. These are also topics influencing the volatility in the portfolio of carriers, so we do still see a disciplined underwriting approach around these topics.
In summary, the softening drives price down, creates more flexibility around terms and conditions. And the outlook is that this will keep on going for Q4, Q1 as well, as the pressure for carriers to grow is still out there.
A positive environment for our client, but that doesn't mean you can lose your attention to key elements like a good focus on risk management and explaining your risk management philosophy to the market. Stay focused on risk management and a need for data to get better insights and understanding of risk. It's all about selling your risk to the market to get the better deal.
KATHERINE LATHAM: So as Victor mentioned, although market conditions are favorable for increased capacity, natural catastrophes are still an area of concern. There have been trends of increase in insurance losses for less severe but more frequent perils such as hail, tornado, and straight line winds. These are known as severe convective storms.
So high up in the priorities of risk managers is maintaining and sharing a complete and accurate picture of their exposure within their portfolio. So things like addresses, their values, the building characteristics, and occupancy all play a key role in understanding the natural catastrophe risk, and are used by brokers to structure the placement and by insurers in their pricing.
Clients should have open and frequent communication with their broker on what information the market need. But this data is not just useful for the conversation around transferring risk. Combined with risk scoring and catastrophe modeling, accurate exposure data provides insights into the key risk factors of a portfolio and its loss drivers, and also provides focus areas for risk mitigation.
So whilst market capacity may be at a high, truly understanding a portfolio's risk remains imperative. And the risk of a large catastrophic event, such as an earthquake or a named windstorm remains.
RORY HARDINGHAM: So as we have seen, the North American cat season has been relatively benign this year. However, Hurricane Melissa, which went through the Caribbean recently, specifically Jamaica, is on trend to cause $3 to $5 billion worth of insured loss. Now, that's not enough to change the global market rating. However, that will be felt by insurers and reinsurers specifically. But we will not know until Q1 next year what impact this will have on market rates.
This ties me into the international update, which follows on from what Victor was talking amongst the European market conditions. The international market is very similar to Europe. We're seeing continuing softening trends with rate increases varying dependent on the size of occupancy of our clients.
Our SME clients are not seeing the same reductions as our large and complex clients. This is due to economic restraints that underwriters have for minimum premium requirements, which is based on the sums insured of our clients.
Overall, the international market is very much in a softening cycle, and we expect this to continue going into Q1 next year. And we will not know the full extent of Hurricane Melissa and other cat events that have taken place in the second half of this year until we-- until treaty reinsurance rates are set, which will be January next year.
THOMAS WRIGHT: We are very much at a dynamic competitive casualty market right now, and the drivers we identified and discussed in our previous update remain, namely the influx of new entrants into the market with ambitious growth aspirations and established insurers looking to retention as a means to sustain long-term profitability following several years of strong underwriting results.
So whilst rates continue to fall and the market completes a full calendar year in this rating environment, we're seeing insurers looking to differentiate wherever possible across a broader spectrum of their offering, showing a desire to be more flexible and creative, motivated to fine-tune their products to make them more cohesive and accessible to clients, and incorporate broader coverages into policy wordings.
JACK LEDGER: Following on from the Q2 update, the downward rating trend has continued into the back end of the year, despite a consistent frequency of large loss notifications. For smaller and mid-market clients, competition for business has enabled us to secure double-digit rate reductions from either incumbents or new markets. However, for large clients, distressed clients, or those with structured placements, the need for market consensus likely moderates these reductions.
But beyond pricing, there is clear scope for enhancement to terms and conditions. And whilst they may seem insignificant at times, updated policy language, extended indemnity periods, and the removal of exclusions that were previously market standard can all make material differences to claim acceptance or quantum. Our message to clients would be if your policy language hasn't changed in the last five years, you are likely missing out on vital coverage.
KIRAN NAYEE: Much like both Tom and Jack have said across the whole international and European Casualty marketplace, possibly with exception to the US, we're seeing significant rate declines as insurers compete strongly. It's definitely a buyer's market.
We see continued aggression from insurers as they strive to meet year end targets. Casualty is seen as a profitable line of business, and the underwriters are under pressure to write more. This is just accelerating the competition and aggressive behavior. I think this will be one of the most competitive quarters that we've seen for some time.
That said, there are still some areas of concern on the horizon. US risk exposures are continuing to cause a problem for insurers, largely due to continuing societal inflationary trends. As such, insurers remain very careful about how they deploy their capacity where there is a material US exposure.
For clients that have significant US exposures, that should certainly be a consideration. There also remains caution with regards to noncore coverage extensions, and also emerging risks such as PFAS exposure and AI. But in general, it's good news for buyers. And at the moment, it's difficult to see an end to this trend.
JACK LEDGER: In recent years, clients have become accustomed to achieving strong results at renewal, and we are now seeing a growing trend of clients looking beyond risk pricing to question whether the structures of their programs are genuinely fit for purpose. Historically, portfolio benchmarking has been a client's primary means of comparison.
But as product risk continues to develop within ever more complex supply chains, this is no longer enough. Clients want tailored solutions that reflect their own risk profile, not that of their industry peers. So with this, the demand for data and analytics is growing exponentially.
THOMAS WRIGHT: We're very much seeing this dynamic play out in the international casualty market, the immediate benefit as an insurance buyer over the last 12 months. And a real focus has been on value extracted out of the risk transfer market. And in turn, this has opened up opportunities for clients to review their program structures and to realign them better with their needs as those evolve. Now, we're seeing this as a priority for clients, and we're working collaboratively to build out sustainable solutions that we can present to the market.
I'd also add that an area that is coming into focus more than ever for our clients is service. And more precisely, the level of service that they should expect as clients and insurance buyers. Broadly speaking, the insurance industry has struggled with setting clear and measurable standards for delivering service. And the easing pressures on clients to merely secure capacity and focus on risk transfer pricing is opening up a new front for insurers to differentiate as clients look to a more rounded offering from the market and raise service levels as a top criteria when selecting insurer partners.
KIRAN NAYEE: With declining rates, it's an excellent opportunity for clients to really evaluate the programs that they have in place-- the limits, the retentions-- and drive coverage enhancements. With incumbent carriers working hard to retain business coupled with aggressive competition, clients are actively evaluating alternative options to deliver more relevance from both the coverage and pricing point of view.
I would urge clients to shop around, looking at both their domestic local markets, as well as international markets to secure the best terms and conditions. This is especially true in the large and complex space. This includes the use of facilities and the faculty of reinsurance market to complement what can be procured locally.
Clients should expect carriers to step up to the table. In effect, to have a clearer proposition, really understand the client's exposures, needs, and industry drivers. Carriers that have a greater relevance, a greater understanding, combined with the better use of data and analytics will stand the best chance of being successful in the current marketplace.
As such, the provision of good, accurate, and consistent data, both exposure and claims, remain an important factor. Insurers are looking to us to find ways to try and help them to get the best possible deal. The more that clients can support them with data that they can in turn use to put pressure on their own internal mechanisms, the better. In addition, subsequent modeling also ensures that clients can drive the market whilst also having the confidence in their own decision making.
JAMES GILLESPIE: As always, a deep understanding of the client's risk profile is the best starting point. Our clients can remove avoidable uncertainty by providing nuanced exposure and claims data, which will avoid nonrepresentative market assumptions.
Now of course, on top of this is overlaid the external environment. For example, as Kiran was discussing, social inflation, and when it comes to property exposure trend. But this combination, this powerful analytical base, enables a rich exploration of the client's exposure to loss frequency and loss severity. That is, the client can gain deep insight into the variability of loss they are exposed to.
Of course, analytics teams can then work with the client to uncover the optimal risk transfer options in the current market, tailored to the client's risk appetite. This level of analytics also differentiates the client, which goes a long way when taking the client's account to the market for support.
JACK LEDGER: Now, product recall as an insurance class does not benefit from the wealth of historical data available in property or general liability. With many existing or prospective buyers of product recall insurance yet to suffer a significant loss, clients are questioning the adequacy of their limits and their retentions with little empirical data or claims experience to support this process.
Working alongside James and the analytics team, we have sought to answer these questions. With industry-specific modeling capabilities, we can now quantify this exposure and narrow the gap between cost and coverage. Clients want to understand how inflation of exposures across the manufacturing sector can impact their program adequacy, be it the cost of labor, energy, or the impact of tariffs on raw materials.
Factoring in these changes allows clients to build this into their budgetary process and future-proof their programs. This is a necessity to enable clients to make informed decisions about their programs and enhance the value of their insurance spend.
KIRAN NAYEE: Be a seller of risk as opposed to a buyer of insurance. We know that the market giving price savings. The question is how to optimize those savings and how to get the best options and best coverage value through generating focused competition within the market. In this respect, data and analytics can play a key role in delivering the optimal market response.
