2023 has seen a relative stabilisation in capacity, a lack of major Liability Energy catastrophe claims and a moderation in rate increases. Is the market now finally heading back to the promised land of rate neutrality or even (whisper quietly) towards that long-forgotten territory of rate reductions?
Whilst the dynamics are directionally positive for the insurance buyer, there are some underlying concerns that caution against too early a celebration. In short: trends are broadly positive and cautious optimism is justified but some negative drivers give continued cause for thought.
The most recent set of annual results announced by Lloyds in March 2023 shows that Casualty, as a class, finally returned to an underwriting profit - the first time in eight years.
Whilst the Lloyds results represent only a part of the global Casualty market, albeit a very significant one, and include all Casualty lines (including D&O and Financial Lines, Cyber and Accident & Health), they are nevertheless a good barometer of the overall health of the General Liability sector.
Total Published Global Liability capacity continues to track at approximately US$3.05 billion, with actual working capacity at approx. US$850 million.
This apparent stasis hides some underlying changes. There has actually been a measured influx of additional capacity both from increased line sizes of certain existing insurers and also from some limited additional new capacity. However, this has been balanced out by a capacity contraction from other insurers who have curtailed their purchase of Treaty Reinsurance, reducing their overall line size.
Encouragingly, an increased appetite from certain insurers and Lloyds syndicates to deploy capacity lower down on a programme, at Primary or first excess levels, is aiding competition. We also expect the entrance of one major new insurer into the International Energy Liability arena at 1 January 2024, if not before.
As insureds will be aware, most insurers rely on Treaty and occasionally Facultative reinsurance to support and augment their own net capacity. Pricing and rate changes experienced by an insurance buyer are therefore not only influenced by an insurer’s own profitability but also by the back-end cost of their reinsurance purchases.
Many key treaties renewing in Q1 2023 saw increases, although not as severe as first feared. Interestingly, some insurers renewing their Treaties at 1 July 2023 were faced with meaningful rate increases. In one such example, an insurer who was quoted a 20% rate increase elected not to purchase the same level of Treaty capacity protection, because the direct market would not sustain such an increase. Increases of 10% have been more common, although insurers have often elected to change their retention levels to further mitigate the effects.
All eyes are now on the forthcoming Year End/Q1 2024 season which will strongly influence the future climate for direct liability rates in 2024.
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|International energy liability update 2023