A canvass of London market D&F players by Insurance Insider estimated the average risk-adjusted rate increase of cat accounts renewing on 1 April will be around 20%, even on clean accounts, with some loss-making accounts seeing rates double, depending on their exposure to recent cat events.
For non-cat accounts, rates have already been rising by an average of 10% as a knock-on effect.
The significant reacceleration of rates since the end of 2022 means this is the sixth year of compound rate rises in a row – a trend which many in the market called unprecedented.
London-based sources told this publication that they have not observed anything like the current trading conditions in the class, with underwriters also gaining the ability to be even more selective amid a significant influx of new business from the US.
The rate hikes have emerged due to an imbalance in supply and demand triggered by a withdrawal of delegated authority capacity in the US and a significant reduction of line sizes by several large US players, made in response to a re-evaluation of cat appetite and rising reinsurance costs.
This dislocation is primarily focused on US wind-exposed coastal property, while international business is not seeing the same disruption. One market source said clean wind-exposed US accounts are up 20%-30% at renewal, with some accounts seeing rate increases of up to 100% if they are not deemed adequately priced.
One of the chief challenges for underwriters at this 1 April renewal is managing the sheer volume of submissions and triaging them for the best risks, while brokers have often been concerned about being unable to place new business, and gaps are evident in programmes.
At previous renewals, increased demand for capacity had only slightly strengthened the underwriter’s hand in pricing negotiations, but this has changed. The reacceleration of rates that began in Q4 2022 has taken hold at the same time as an influx of US business.
The submissions flowing into the London market have mostly been for wind-exposed coastal property, which has been dropped by US MGAs and other players cutting line sizes to better manage their risk.
AmRisc recently reduced its line size from $300mn to just $50mn following the exit of some paper providers, including AIG. These exits and cutbacks have been a key driver of the supply-demand imbalance in D&F.
Sister publication Inside P&C reported after the 1 March renewal that most US property insurers are trying to cut down on cat risk exposure, which resulted in them reducing their line sizes by an average of 25% in the admitted market and over 50% in the E&S space.
The current market conditions mean London underwriters have been rushed off their feet with new business, and are often struggling to analyse all the new business coming in.
One broker told this publication that it was the busiest they had ever been, and that trying to get underwriters to look at new business was an “absolute task”. Another said the queues at boxes in the Lloyd’s underwriting room are some of the longest they have ever seen.
One underwriter remarked that for every dropped account, they can find three better ones to replace it, so they are more than able to be picky when choosing what business to write, while another said new submissions were up by around 25%.
However, the London D&F market still has constraints on capacity supply, with sources remarking that players were looking to manage their budgets across the entire three-month renewal season. It was suggested that only one or two markets in London seemed to be growing opportunistically. As such, not all programmes are getting fully placed.
One source said that an account with a $600mn limit last year might be lucky to get $300mn in the current market, depending on loss experience.
Overall, it appears that limits are being cut on the larger accounts in the market, and there are sizable gaps on some of the longest-standing programmes.
As a result, market sources told this publication that they have been seeing incomplete towers and self-insurance at the highest layers, as well as some insureds having to take higher retentions.
Although wind-exposed coastal property is one of the most dislocated subsectors, the upward swing in pricing is being felt across the property market.
Adding to the narrative around cat, several sources said Winter Storm Elliot had a worse impact than previously thought, but that it has not had the same effect on rate movements compared to Hurricane Ian and the California floods.
As an example, a source said that one account affected by the Californian floods in January could see a rate increase of around 20%, while a Floridian account with an Ian loss was looking at a 50%-75% hike.
Despite compounding effects of US trends driving new business into London and the huge rate increases expected for 1 April, some market sources are sceptical that the upward pressure on pricing will continue past the 1 June and 1 July renewal periods and into next year.
Inflation still making an impact
Over the last 12 months, inflation has had a continued impact on the rating environment in the London D&F market. Ahead of the 1 April renewals, valuations of the assets covered under policies remain a key focus.
Market sources are still focussing on the undervaluation of assets as a key driver for premium increases, as they believe properties had been undervalued systemically for many years.
Despite the attempt to re-evaluate valuations in line with inflation, underwriters are still struggling to achieve accuracy, with one source remarking that some valuations are “out of whack by a factor of five”.
In previous market canvasses, sources told this publication that they felt some underwriters were still failing to account for inflation in their prices, but this appears to have changed.
Now market sources say there has been a shift in the right direction, but there is still a sense of pessimism among some in the market that not enough has yet been done to tackle rising inflation and increased material costs.
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