Ben Rolfe
Head of Commercial Risk Solutions, Australia
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As Insurers look to pass on reinsurance retention uplifts, buyers continue to push for new ways to manage this gap between their own retention capability and capacity availability. We have seen a strong uptake in the purchase of parametric solutions and other captive enablement structures to bridge this gap allowing for more sustainable long term risk transfer.
Regional Overview
- A two-tiered market continued. In appetite, well-managed risks experienced generally favorable conditions while less-preferred risk types and poor-performing risks experienced a more challenging environment.
- With economies and travel now largely open across the region, businesses continued to expand and in turn sought to enhance and broaden their insurance solutions. Insurers generally responded favorably; enhanced solutions were available, especially for in-appetite, well-performing risks.
- Capacity continued to enter the market through new insurers as well as an expansion of appetite from insurers seeking to diversify. This new capacity was largely focused on longer-tail lines such as Casualty and Professional Indemnity.
- The implementation of the Australian treasury-proposed mandatory climate reporting requirements is scheduled to begin on July 1, 2024, keeping Australia in step with New Zealand on climate regulation and helping companies and investors maximise economic opportunities in the shift to clean energy and management of climate risk.
Q2 Market Dynamics
Pricing (+1-10%)
The pricing environment was moderate across most lines with a few notable exceptions. Increased competition led to softer market conditions for Cyber, Directors & Officers and middle market risks, while challenges continued for higher-risk sectors, risks with adverse claims experience, and Natural Catastrophe-exposed Property risk.
Capacity (Ample) Capacity was sufficient across most products and risk types and new capacity entered the market in areas targeted for growth. A notable exception was Professional Indemnity, where insurers were conservative in their capacity deployment, especially for higher-risk professional activities.
Underwriting (Prudent) Insurers demonstrated flexibility and a willingness to negotiate, particularly on Auto and Directors & Officers risks, while Cyber, Casualty and Professional Indemnity, as well as non-preferred and loss-active risks experienced a more conservative and rigorous environment, and extensive underwriting information was required. Scrutiny of asset values continued.
Limits (Flat) Limits were generally stable with the notable exceptions of Natural Catastrophe Property, where aggregates continued to be imposed, and Cyber, where insureds looked to re-invest in higher limits.
Deductibles (Increased) Insurers sought to increase deductibles to address the impacts of inflation, to reduce their exposure to attritional claims and to manage their Natural Catastrophe exposure.
Coverages (Stable) Coverages remained generally stable and broader terms could be achieved for Cyber, where cyber security maturity was demonstrated. Insurers carefully monitored their exposure to bushfire liability, worker-to-worker risk and contractual liability in Casualty and coverage terms tightened to address valuation concerns in Property.
Q2 Product Summary
Automobile (Moderate)
The market experienced offsetting factors. New capacity has increased competition, pressured pricing downward and enhanced coverage flexibility despite inflation driving up repair costs, increasing the cost of claims and affecting insurer profitability. The convergence of these factors led to moderate market conditions in Q2.
Casualty / Liability (Moderate) Insurers sought targeted portfolio growth while continuing to limit capacity and employ stringent underwriting practices for hazardous industry sectors. Rate increases continued across-the-board as the impact of claims and social inflation had a profoundly negative impact across entire portfolios.
Cyber (Soft) Having satisfactorily de-risked their portfolios over the last 24 months, insurers have shifted their focus toward targeted growth. Most insurers have increased line sizes, expanded industry appetite and removed some of the restrictive terms applied during the challenging market period. Underwriting rigor and scrutiny remained strong; however, organisations demonstrating a commitment to cyber security experienced a more accommodating underwriting environment and broader terms – as well as higher limits – could be achieved.
Directors & Officers (Soft) Favorable market conditions continued, driven by an influx of new capacity from existing insurers as well as new market entrants. Competition was healthy as a lack of capital market activities continued to reduce opportunities and pressure insurer growth. Pricing was down, especially for risks which had experienced significant recent adjustments; however, it remained firm for distressed and loss-active risks. Appetite remained limited for US IPOs, SPACs and DeSPACs, and risks related to digital assets. Insurers were more amenable to considering higher limit deployment, especially on preferred risks.
Marine (Moderate)
The Hull and Machinery market experienced increased competition from London markets, leading to price decreases. The Protection & Indemnity market experienced moderate price increases which most clubs had previously announced as a result of meaningful investment losses and the impact of claims inflation. The Cargo market experienced flat renewals with some modest increases (and more significant increases on poor-performing risks). Local insurers - focused on retention and growth - provided favorable terms and significant capacity. Coverage language that had been recently narrowed could often be expanded. The Ports & Terminals market was focused on risk selection via rigorous underwriting of comprehensive information including contracts and survey reports.
Professional Indemnity (Moderate)
Inflated claims costs and additional exposures continued to pressure the Professional Indemnity market, even despite cumulative years of portfolio remediation strategies. The two-tier market continued: while there was renewed appetite for insureds whose professional activities were considered low-risk, insureds with higher-risk activities continued to experience challenging market conditions, including significant price increases and restricted capacity.
Property (Moderate) Pricing and capacity pressure continued, with divergent outcomes for 'target' and ‘non-target’ risks. Signs of insurer competition emerged for non-Natural Catastrophe exposed risks and lower hazard occupancies. Conservatism continued for high-hazard (including Natural Catastrophe-exposed), poorly managed, and claims-affected risks. In these cases, availability of capacity remained challenged. Coverage terms continued to tighten to address valuation concerns
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