Q2 Automobile Summary
Auto Liability remained challenged, although competitive pressure on Primary Casualty programs kept rate increases moderate.
Rate increases were generally modest for primary Auto Liability risk transfer. Auto fronting fees remained flat. Where vehicle counts grew, rates were reduced as insurers sought to maintain or grow premiums.
Most insurers have maintained capacity levels since 2021. Some have differentiated their position in the second quarter of 2022 by offering more risk transfer capacity for primary Auto Liability than in recent years.
Underwriting remained generally stable. Insurers continued to evaluate insureds’ use of vehicle safety technologies, including telematics, as part of the underwriting process.
Flat limits were generally available, and most insureds opted to keep limits “as is”.
Most deductibles remained flat in Q2, although in select cases deductibles moved lower or higher.
With Auto Liability highly regulated under state laws, there was little variation in coverage for primary policies.
A Look Ahead (Moderate)
Market conditions are likely to continue becoming more competitive; however, insurers are expected to seek modest rate increases in line with inflation and loss trends.
Q2 Cyber Summary
The market environment remained challenging, with significant rate increases, limited capacity and rigorous underwriting. Cyber and Tech Errors & Omissions risks experienced significant program adjustments, including to pricing, retentions, coverages and capacity, in a trend that has lasted well over a year. For June 2022 renewals depending on the class of business, year-over-year improvement of controls, and previous markets’ adjustments, program changes were not as drastic as had been experienced earlier in the year.
Significant rate increases continued, but varied based on class of business, segment, controls, loss trends and prior pricing adjustments. In general, pricing reflected ransomware-related losses and insurer concerns regarding systemic, correlated risks. Competition on excess layers led to the implementation of proper Increased Limit Factors (ILFs), in contrast to the automatic increases seen previously.
New capacity entered the market, primarily in the high excess layers, but capacity remained constrained overall, and global aggregate capacity remained a key area of focus. Class of business, attachment point, and cybersecurity control posture were key factors in determining capacity deployment.
Underwriting rigor and extensive information requests continued, including collection of biometric information in some cases. The underwriting process was extended due to escalations and referral underwriting. For larger and more complex risks, many insurers required an underwriting meeting in addition to a written submission, and supplemental applications have become common. Insurers remained focused on underwriting to ransomware controls, and if the required underwriting information was deemed inadequate, ransomware-related coverage was not offered or was offered subject to sub-limits and/or coinsurance. Insurers closely scrutinized exposures in Russia, Ukraine and Belarus.
Alternative risk transfer strategies such as captives, fronted arrangements and increased self-insured retentions have become important levers to help offset lost capacity.
For most placements, especially those in the middle market space, if a retention increase occurred in 2021 (including longer waiting periods for business interruption/systems failure), expiring deductibles could be achieved in Q2 2022, unless the insured had a control issue or requested alternative options.
Coverages (More Restrictive)
Insurers continued to scrutinize the coverages offered for critical infrastructure, systemic and correlated events, with some insurers restricting coverage on either a generalized or event-specific basis. For dependent business interruption/systems failure, some insurers imposed sub-limits and/or added coinsurance provisions. Insurers have closely monitored the geopolitical environment, particularly focusing on potential increases in cyber claims related to the geopolitical events in Eastern Europe. As a result, insurers have reviewed and, in some cases, amended their war, sanctions and territory coverage conditions. Certain insurers have also sought to remove non-core Cyber coverages (full media, cyber-crime and previously sub-limited coverages). Excess insurers have reviewed all sub-limits, regardless of attachment, with many no longer offering followed/drop down coverage when the underlying limit for these coverages has been eroded. Insurers have also continued to emphasize cyber incident response panel arrangements, including the use of pre-arranged vendors.
A Look Ahead (Challenging)
Cyber and Tech E&O insureds saw significant program corrections (premium, retention, coverage, capacity, etc.) through 2021 and most of the first half of 2022. Depending on the class of business, year-over-year improvement of controls, and previous markets’ adjustments, program changes during the second half of 2022 may not be as drastic as have been recently experienced. Insurers will continue to monitor the geopolitical environment, and to scrutinize coverage offered for critical infrastructure, systemic and correlated events. There is likely to be greater enforcement of regulatory statutes and increasing regulatory governance globally. Rate increases are expected to continue in the second half of 2022, but competitive forces may pressure pricing downward. Insurers are expected to differentiate risks and price according to specific risk profile. While some new capacity has entered the market, it is primarily in the higher excess layers and is driving competition in those layers. Having been significantly adjusted over the past two cycles, current retention levels are expected to continue.
Q2 Employers Liability/Workers Compensation Summary
Workers Compensation has continued to be profitable for insurers, encouraging competition. This means that only nominal increases, if any, have been realized in most cases. Many insureds experienced decreased pricing.
Most rates were nearly flat, with any increases or decreases generally small. Increases tended to be seen where payrolls were reduced.
There was more competition for Workers Compensation business in Q2 than in the recent past. The marketplace for Excess Indemnity insurance for Texas Non-Subscribers, however, became more constrained.
For Workers Compensation and Employers Liability loss-sensitive programs, insurers generally focused on loss history and loss rates, aiming to develop programs that would be attractive to clients while profitable for the insurer.
Statutory limits dominate the Workers Compensation space. In some cases, Umbrella insurers required higher Employers Liability limits. Most, however, remained flat.
Most clients chose to maintain existing deductible levels.
Workers Compensation coverage is highly regulated under state statutes, so coverages saw minimal variation. Employers Liability coverage was generally stable.
A Look Ahead (Soft)
The market for primary casualty programs with a large Workers Compensation component is likely to be extremely competitive, depressing rates regardless of prevailing inflation trends.
Q2 Trade Credit Summary
Driven by low loss ratios, the soft market trend continued in Q2 as capacity further expanded through new market entrants as well as an expansion of appetite and product offerings by current insurers in this space.
Ongoing favorable portfolio performance and intense market competition continued to drive competitive pricing.
Favorable performance and healthy competition led to abundant capacity in this space.
Underwriting was flexible as insurers competed to retain and grow their portfolios.
Increased credit limits were mainly driven by the inflationary environment, but also by insureds expanding the scope of their portfolios.
Deductible decreases were available as a result of favorable performance in this space and healthy market competition.
Strong market competition drove insurer flexibility with coverage terms and policy wording.
A Look Ahead (Moderate)
Upcoming headwinds driven by inflationary pressure are expected to moderate current market conditions.