Signs of cautious optimism in the insurance market
Searching for an elegant way to summarize the trajectory of the insurance industry over the last quarter has been a somewhat frustrating effort, so I will settle, instead, for some very practical language. It’s been a mixed bag.
Big news in the first quarter of 2023 was the failure of Silicon Valley Bank (SVB) in early March and the demise of several other major global financial institutions. At the Zywave Advisen Casualty Conference a few days after SVB, I sat with Russ Johnston, president of Nationwide Commercial Lines, on a View From the Top panel where he described our economy as being in the longest telegraphed recession in history. While perhaps said in jest, the statement certainly feels directionally accurate. The interest rate environment has impacted all and has far-reaching implications in a cash-heavy industry like insurance.
That said, the financial markets remain strong, and unemployment is still low. While what 2023 will bring to our economy remains predictably uncertain, our insurance market is, for the most part, telegraphing positive signs for our buyers.
Leading the way is directors & officers insurance. The strong financial market in the last few years has mitigated claims activity, and insurance carriers are aggressively pursuing market share, which is helping drive down pricing at rates unseen in more than a decade. Even the cyber marketplace has new capacity pursuing growth, and while just a short period ago one could expect 50% (or more) rate increases on their programs, we’re now seeing those same programs renew with flat rates. Related, our experts have seen an uptick in ransomware activity in the last month, and should that trend continue, the market could be quick to respond.
The property and casualty market, however, appears to be in a state of unsettled disagreement, as it continues to be a tale of haves and have-nots.
Starting with the “have-nots,” it is a list of one – property insurance – and what they don’t have is CAT capacity. As the industry ushered in the new year all eyes were on January 1 property reinsurance renewals. While Hurricane Ian’s recorded record high $68 billion in insured losses had minimal impact on the commercial retail insurance market, it did have a profound impact on the reinsurers. Beginning in October reinsurers proclaimed a hard market, and January 1 arrived with higher premiums, bigger retentions and limited capacity for CAT coverage. This position has drawn the retail property market into a hard market, and many CAT-exposed risks are finding it difficult to fill out their programs. There are signs that reinsurance capacity may be more abundant come July, which would help ease the voracity of the hard property market.
On the flip side, one would have to go back to 2018 to see casualty capacity at levels higher than today, though deployment of that capacity has changed. Carriers are successfully ventilating their limits, and perhaps this strategy, along with some regulatory reform (e.g., Florida HB 837), could be enough to support long-term stability for this line.
So many ups and downs impacting the industry — you can understand my initial struggle in finding the right words to describe our current position. At the end of the day, we find ourselves in a cautiously optimistic “wait and see” position relative to several factors that can significantly influence outcomes for our industry. But while we’re waiting, let’s enjoy the positive trends that are forming outside of property insurance and make the most of the favorable conditions while we can.
Let’s also not forget that we’ve been through all this before. WTW has been helping clients work through difficult and uncertain times for decades, and we bring perspective that will help collectively move us through the challenges of today toward a brighter tomorrow.
Here are some highlights from our spring 2023 predictions:
For more insight on how you can prepare for a challenging marketplace, contact your local WTW representative.
Pressure to obtain higher returns for deployment of catastrophe capacity/aggregate will drive premium increases for insureds while inflationary pressure, reinsurance optimization and persistent scrutiny on valuation of assets remain.
Workers compensation continues to provide underwriting profit, maintaining a steady primary casualty marketplace.
The international casualty marketplace remains a steady environment, with ample competition available for multinational insureds to find adequate capacity for risk transfer.
While we still foresee a more promising casualty landscape, we entered 2023 with significant headwinds in the property market given unprecedented CAT events, and we expect this trend to persist through the year.
The Canadian casualty marketplace has entered into a state of growing stability on rate expectation. For property, additional capacity is driving competition and creating rate stability.
Market stabilization is continuing in 2023. This is largely due to fewer companies paying ransoms, a reduction in overall cyber claim activity, and improved controls by insureds.
Abundance of capacity and a stabilized securities litigation environment continue to drive competitive market dynamics.
The EPL market continues to stabilize largely due to competition with markets eager to write new business and maintain their renewals.
As insurers continue to correct rates to better align with long-term loss experience trends, legacy markets’ pricing has been impacted, and new carriers are being attracted to the E&O space
Although premiums have historically been inconsequential compared to other financial and executive (FINEX) lines, the loss trends are nothing to bat an eye at.
Despite conflicting positive and negative risk developments and some carriers remaining wary, a few carriers with increased appetites are leading to improved market conditions.
Competition among insurers persists across all lines for financial institutions (FIs) resulting in rate stabilization, and for certain classes of business, rate decreases.
Insurers continue to take a measured wait-and-see approach to the impact of Russia’s confiscation of aircraft, and we don’t expect to see this manifest until some time in 2024.
Pricing in the ART market is generally stable due to embedded risk financing. Structured and parametric solutions will drive the ART market in 2023.
Adverse severity claim trends reported by most professional liability (PL) carriers continue without any signs of improvement. Social inflation is being cited as the primary driver.
While there is now less consistency in insurance rate movements than in the previous period, some difficult areas remain.
Although rate decreases on renewals are still rare, we are experiencing positive trends in renewal pricing for contractors that we expect to persist throughout 2023.
There has been a re-hardening for downstream energy and current hardening dynamic cannot be sustained indefinitely for upstream energy.
2023 marketplace should experience steady yet cautious growth while continuing to face the headwinds of increased claim frequency and severity, regulatory and economic uncertainty, and emerging exposures.
While overall rate increases appear to be stabilizing, decreases are not expected any time soon.
The special risks insurance markets have almost uniformly removed all cyber extortion coverage from their policy forms.
Product and professional liability rate predictions remain in the mid-single digits, largely due to inflationary factors and nuclear verdicts, with a focus on maintaining favorable coverage terms and conditions.
E&O and D&O conditions for managed care organizations (MCOs) have stabilized, but systemic risks and concern over mass tort, antitrust and class action claims continue to plague MCOs.
As we head into 2023, marine insurers continue to push rate; however, not to the extent that was seen between 2018 to 2021.
The marine market remains firm with demand for price adjustments across the board — higher end of range for challenging risk exposures.
The personal lines insurance market is experiencing a persistently hard market that may extend for several more years.
February 24 marked the one-year anniversary of the start of the Ukraine/Russia conflict. In response, C-suites at multinationals are reviewing their rest-of-world portfolios and increasingly look to transfer such risks, while the market has hardened considerably.
The large-scale losses have come to fruition; thus, renewals with incumbents have become much more granular when it comes to manufacturing facilities and supplier aggregation.
Property renewals, heavily impacted by catastrophic and non-catastrophic loss experience as well as a very difficult treaty reinsurance renewal on January 1, will be most challenging for owners and operators.
Surety companies continue to be profitable, and we continue to have adequate capacity to meet our clients’ needs.
Current political/economic conditions and conflicts around the globe are helping drive up pricing for political violence and terrorism insurance.
All economic signs point to deeper recession in the second half of 2023. Cash flow constraints and access to liquidity will lead to higher insolvencies, and this is expected to bleed into 2024.
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| Title | File Type | File Size |
|---|---|---|
| Insurance Marketplace Realities 2023 Spring Update | 6.9 MB |
