A number of convective storms, severe winds and hail all led to high cat losses, many of which were disclosed in Q1 pre-announcements.
For context, Travelers CFO Dan Frey disclosed that pre-tax catastrophe losses of $535mn in Q1 were about $160mn above average first-quarter cats for the company for the past five years.
Allstate announced $1.17bn in pre-tax cat losses, representing 9.7% of equity, as it reckoned with 10 events. Around 75% of the losses related to three wind events.
Other significant announcements relative to equity were by The Hanover, at $175mn, or 7.5% of equity, and Mercury General at $98mn, or 6.4% of equity.
Cincinnati Financial CEO Steve Johnston said the carrier has more exposure to severe convective storms in its property book, which led to higher-than-anticipated cat losses in Q1 2023.
The company reported a Q1 combined ratio of 100.7% – 10.8 points higher than the prior-year period.
The Hanover Group’s Q1 combined ratio worsened by 11 points to 104.4%, as the company faced higher catastrophe losses, especially in its core commercial and personal lines divisions.
“The drastic catastrophe losses sustained by the industry in the first quarter reaffirm our efforts to mitigate the impact of very volatile weather. In particular, we are taking steps to address the significant negative impact of winter and severe convective storms through refined underwriting, increased pricing, and enhanced loss prevention actions,” the company said.
US convective storms have resulted in more than $10bn worth of insured losses every year since 2008, leading insurers to change the way they view and write the risk, according to Gallagher.
Rates
Amid an inflationary environment, keeping rates ahead of loss costs remains top of carrier agendas.
At Chubb, pricing in North America commercial P&C increased 11.2%, including changes in rate and exposure of 6.4% and 4.5%, respectively, while loss cost trends in the segment rose 6.7%.
CEO Evan Greenberg said that overall, the carrier’s 7.6% premium growth in North America commercial lines in Q1 is “representative of the minimum rate growth we expect for the balance of the year”.
Commercial property was once again a standout when it came to rates, and executives expressed optimism about the segment going forward, while public D&O was in the spotlight for the opposite reason. It is seeing continuing pressure from high capacity and meager public offerings.
A hardening reinsurance market, constrained capacity and ongoing cost pressure from cat losses are all leading to a hard commercial property market, executives said.
By example, Q1 property pricing for Chubb jumped 27%, with rates up 16.4% and exposure change of 9.1%.
For Arch, property “has seen significant rate escalation, which supported our 37% net premium written growth in that line of business during the first quarter of '23”, CEO Marc Grandisson said.
“The property market is still broadly dislocated, and we believe it will take further rate improvement before it finds equilibrium,” the executive added.
Meanwhile, property reinsurance buying conditions at the mid-year point will likely strongly resemble those seen at January 1, according to RenaissanceRe CEO Kevin O’Donnell.
“We continue to see robust demand,” O’Donnell said, noting that in contrast, investor appetite for volatility remains diminished.
At the other side of the spectrum, in D&O a lack of public offerings and a glut of capacity attracted during hard markets of 2018-2020 are leading to an ongoing, and by some measures accelerating, decline.
This has led to companies mulling their participation in the space. Markel for example is “shrinking” and being selective in its professional liability line as it rebalances its portfolio where it doesn’t see rate adequacy, according to president of insurance Jeremy Noble.
Brown & Brown recorded a decline in E&S professional liability rates, primarily public company D&O, of over 10% in some cases during the quarter, its CEO said.
Prices for D&O coverage fell by 24.9% in Q1 2023 as rates continue to fall away at an increasing rate in the class of business, according to Aon’s latest pricing index.
Personal auto malaise
Personal auto continues to be a thorn in the side of many carriers in the space, with executives saying they are seeking sharp rate increases to make up for inflationary pressures. Increased frequency and severity are causing notable headwinds for carriers, executives noted this quarter.
Allstate president of property-liability Mario Rizzo said the carrier saw increased accident frequency and severity for Q1, projecting severity in the 9% to 11% range above the full prior report year.
The combined ratio for the auto segment totaled 104.4% in Q1, up 2.3 points year on year, reflecting higher accident frequency, current report year claim severity and catastrophe losses.
Therefore, Allstate will continue to push for more auto rates through 2023 as drivers of severity continue.
Progressive CEO Tricia Griffith said that the carrier plans to take 8% to 12% of rate in private passenger auto “to catch up and stay ahead of trend”.
On a call with analysts, the executive added: “We thought the largest rate increases were behind us, but this has been a really volatile time, and so we're just reacting to what we’re seeing right now.”
Griffith said part prices are up around 3%, while labor rates are up around 4.5% to 5%.
In the quarter, Progressive booked $621.2mn in adverse development, compared with a $190.8mn reserve charge in Q1 2022.
Other carriers also signaled their intention to achieve double-digit rate increases in personal auto this year. The Hanover CEO John Roche said the carrier anticipates achieving 13% to 14% personal auto renewal price increases in H2, around two points higher than its original expectations.
Meanwhile, The Hartford’s chairman and CEO Christopher J Swift said: “We achieved renewal written price increases of 10% in the first quarter and expected to accelerate into the high teens later this year. In the first quarter, approved rate filings averaged 18.3%, more than double the fourth-quarter result of 8.3%.”
While the increases will take time to filter through to results, new business rate adequacy should be achieved by year-end, he said.
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