Some brokers are already indicating that – outside of the rock-hard property cat market – they believe the tide is turning, from the obvious softening in public D&O to an easing of capacity constraints and shift in momentum in other lines of business, including several casualty classes.
But carriers, on the other hand, are adamant that the case for continued rate increases in many areas is still strong, citing accelerating loss trends, concerns over prior-year reserves, and the pervasive impact of social inflation in addition to economic inflation that is leading to ever-more-shocking jury awards.
Commentary from management of carriers and brokers – as well as market updates from intermediaries – has highlighted what appears to be a more meaningful divergence in messaging to insureds, many of whom are by now experiencing severe buyer fatigue.
Boston in 2019 was the start of a period where brokers and underwriters appeared to be in rare alignment in their communication around the rates trajectory to insurance buyers.
For a period of time they were unified as intermediaries attempted to manage client expectations confronted by the harsh reality of a market transformation – initially led by AIG and Lloyd’s – that saw a significant shortening of limits across most lines of business and a drive from insurers for rate, and then rate-on-rate, and then rate-on-rate-on-rate at successive renewals.
After evidence through 2022 of a moderation of rate increases across most lines of business, there was an expectation that coming into this year the market would be in true transition to a plateauing and then the start of a softening cycle.
But then Hurricane Ian arrived and the reinsurance market got hard – at least for property – leading to talk of the potential for a further extension of the hard phase of the cycle.
And certainly much of the commentary from management of carriers to report so far in the first quarter earnings season has supported that view.
Only last week, Chubb said North American commercial P&C pricing in its book had reaccelerated in the period to 11.2 percent.
The previous week WR Berkley and Travelers also released data on pricing on their portfolio that indicated a pick-up.
WR Berkley president and CEO Rob Berkley said his company achieved rate increases excluding workers’ compensation of 8.3 percent in Q1, the strongest level since the same period of 2022.
At Travelers, the renewal premium change in business insurance remained historically high at an average increase of 9.6 percent in Q1 that was only modestly lower than Q4 2022, while renewal rate (stripping out exposure increase) was up a touch from 4.5 percent to 4.7 percent.
The company’s chairman and CEO Alan Schnitzer said: “I would say the pricing environment remains very strong. We saw a little acceleration in renewal rate that was led by property, umbrella and auto, and we’ll just have to see whether that’s the start of the trend in that direction or it’s not.”
And this morning, CNA reported that it had seen an acceleration of P&C rates in Q1, from 4 percent in Q4 2022 to 5 percent increases, with renewal premium change steady at 7 percent.
Commercial insurance rates climbed 7 percent in the first quarter, up two points from the 5 percent increase reported in Q4 2022.
The insurer’s chairman and CEO Dino Robusto said: “Given the strong start to 2023, the improved pricing in Commercial lines and the tailwind from higher fixed income yields, we are optimistic about our ability to leverage the continued favorable market conditions throughout the remainder of 2023.”
Other carriers polled by this publication in recent days have said that they will stand firm in their insistence that additional rate is needed in most areas of their portfolios – and make the case that after the recent softening in public D&O, the ongoing banking crisis should act to stabilize that segment too.
They have said that they will be highlighting to risk managers concerns about escalating loss cost trends against a backdrop of social inflation, uncertainty over prior-year reserves – especially relating to the few years towards the end of the last soft cycle – and rising reinsurance costs.
And if the E&S market is viewed as a leading indicator for the wider P&C sector, then recent commentary from there suggests there is no slowdown of business flowing through wholesalers to E&S carriers, while many business lines continue to see meaningful rate increases.
Shift towards buyers?
The messaging from brokers to insureds as RIMS was about to get underway was mixed, however, with some taking a more optimistic stance around the potential that conditions for buyers will soon meaningfully improve.
In its latest Marketplace Realities update as RIMS RISKWORLD 2023 got underway in Atlanta, WTW suggested that outside of property dynamics are shifting in favor of buyers.
“The long curve, the larger trend, is bending in a positive direction for buyers,” said the broker as its head of broking, North America, Jon Drummond described a tale of “haves and have-nots”.
He suggested that “have-nots” relates only to property insurance, with the shortage of cat capacity.
Elsewhere, however, he suggested that it would be necessary to look back as far as 2018 to see casualty capacity at levels higher than today – even though the deployment of that capacity has changed, with carriers successfully ventilating their limits.
This strategy, he said, could contribute to supporting long-term stability in the line of business.
He also highlighted D&O insurance as leading the way as far as positive signs for buyers goes.
“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,” Drummond continued.
Also on the eve of RIMS RISKWORLD 2023, Aon’s CEO of Commercial Risk Solutions Lambros Lambrou told The Insurer TV that the feedback his firm is getting from carriers suggests that away from property most product lines have reached or are getting close to technical rate adequacy.
Other brokerage firms have struck a less optimistic note on the potential for a shift back to a buyer’s market, however.
On his company’s earnings call, AJ Gallagher chairman, president and CEO Pat Gallagher said that property and public D&O are outliers, with most lines trending similar to previous quarters on pricing.
And Marsh McLennan CEO John Doyle commented on drivers more broadly impacting the P&C (re)insurance landscape as he said: “P&C insurance and reinsurance rates continue to increase as carriers price to account for rising frequency and severity of catastrophe losses, social inflation and higher reinsurance costs.”
The Marsh Global Insurance Pricing Index showed that for the firm’s US composite, insurance pricing increases accelerated from 3 percent in Q4 2022 to 4 percent in the first quarter of this year, at a time when rate increases were flat at 4 percent globally.
Although that was largely driven by property increases jumping from 11 percent in Q4 2022 to 17 percent in Q1 2023, US casualty also picked up from 1 percent to 2 percent rises on average, while the pace of softening in US financial and professional lines slowed from 10 percent to 9 percent.
Property re-hardening
One area of absolute agreement among brokers and carriers is on the re-hardening of the property market in the US, driven by the hard reinsurance market as well as concerns about inflation and valuations and the frequency and severity of cat losses.
Marsh pointed to a bifurcation, where insurers continued to restrict coverage terms for some clients at renewals.
In his interview with The Insurer TV, Aon’s Lambrou noted that the challenging reinsurance renewal season is “permeating down into the primary insurance community”.
He said that insurance buyers operating in this environment need to find ways to differentiate themselves to insurers.
“We're working with clients pretty intensely around making sure that they're adequately prepared with a plan that enables them to get the best out of the marketplace,” he added.
That includes keeping on top of valuations and ensuring PMLs and modelled exposures are correct, as well as conducting risk management work around protecting their assets to enable them to differentiate those assets to insurers.
WTW’s Drummond pointed to the “profound impact” Hurricane Ian had on reinsurers, driving a hard market that at 1 January led to 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,” he said, adding that there are signs that more abundant reinsurance capacity at mid-year could help ease the hard property market.
The firm is nevertheless predicting 25 to 40 percent rate increases for challenged occupancies, with 10 to 20 percent increases for those that aren’t challenged.
No sign of positive change for buyers in property then - the question is whether other lines of business will see any kind of re-hardening too, or will moderation seen last year pick up pace as a loosening of capacity and buyer fatigue combine to move the rest of the market to softer conditions.
A measured and balanced outcome would suit both sides. Buyers of insurance need to recognise the challenges insurers are facing in managing drivers of volatility and risk such as climate change and social inflation coupled with a higher cost of capital (including reinsurance).
But for sellers of insurance, there must also be an acknowledgment of the challenges buyers face as they weigh up a measured approach that balances what they believe is a need for further rate with the possibility that insureds will increasingly look to alternatives and self-insurance if they feel that the product is becoming too expensive.
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