Brian Wanat
Chief Broking Officer, Commercial Risk Solutions, United States
“
For some time now, social and economic inflation, rising interest rates, natural catastrophe losses, and exchange rates all contributed to putting additional pressure on insurers and reinsurers. However, as valuation scrutiny has served to address widespread undervaluation concerns, insurer pricing has been adjusted in underperforming segments of the portfolio, and interest rates have stabilized, a more moderate marketplace has emerged.
Russell Quilley
Chief Broking Officer, Commercial Risk Solutions, Canada
“
There is optimism in the market as we reach the mid-year point with insurers in general looking for growth opportunities with a particular focus on well-performing risks.
Regional Overview
- Challenges continued in the Property market, with price increases, valuation scrutiny, and capacity contraction; risks in susceptible geographies (e.g., Natural Catastrophe-exposed) and higher-risk industries experienced the most acute and significant market challenges.
- Appetite expanded for Directors & Officers, and capacity continued to increase. Insurer growth-focus, together with fewer opportunities due less IPO, SPAC, and M&A activity, created a growing imbalance of supply and demand, leading to a further softening of the D&O market for publicly traded companies.
- The Cyber insurance market continued to soften as headwinds subsided due to improved insurer loss ratios and increased capacity availability. Rate decreases were common, especially in Excess layers as new capacity disrupted incumbent towers.
- Interest rates stabilized in Q2; however, insurers and reinsurers closely monitored the short-term effects on their bond portfolios. Longer term, higher interest rates and improved investment income are expected to continue to reduce pressure on underwriting profit.
- Insurers continued to monitor plaintiff activity for further increases stemming from a well-funded plaintiff's bar with a boost from litigation financing, trial attorneys and plaintiffs with better technology and data, and juries more focused on social responsibility.
Q2 Market Dynamics
Pricing (+1-10%)
The pricing environment was moderate across most lines with a few notable exceptions. Cyber, Directors & Officers and middle market risks experienced competition-driven softer market conditions, including price decreases. Property – especially, Natural Catastrophe-exposed risks – experienced significant price increases which varied based on risk size, geography and industry.
Capacity (Ample) Demand outweighed supply in Property, especially for Natural Catastrophe-exposed risks, requiring some buyers to self-insure (e.g., captive utilization continued to increase). As insurers cut back capacity in Property, they sought to redeploy it in other areas (e.g., long-tail lines). New entrants continued to deploy capacity in the financial lines space, which had fewer opportunities due less IPO, SPAC, and M&A activity, leading to lower tower pricing. Cyber loss ratios have been healthy which continued to attract more capital.
Underwriting (Prudent) Incumbent insurers were prudent in their underwriting due diligence, and most sought to wrap up renewals early and easily. In-person interaction regained prevalence while virtual underwriting remained a valuable and efficient underwriting approach when needed. Property underwriters continued to quote late – sometimes less than one week pre-renewal – further stressing a process already challenged by significant price increases and valuation scrutiny. Quoting delays stemmed from slow underwriting escalation processes as well as underwriter attempts to gain negotiation strength.
Limits (Flat) Inflation continued to drive up exposures and loss costs, pressuring limits upward, although many placements renewed flat or near flat. Natural Catastrophe sub-limits were scrutinized and reduced, particularly in lower attachment layers.
Deductibles (Flat) Deductibles remained generally stable with the notable exceptions of Property placements – especially those with heavy Natural Catastrophe exposure – as well as poor-performing risks, and risks deemed to have insufficient controls.
Coverages (Stable) Coverages remained stable and broader terms could be achieved in cases where insurers used coverages as a differentiator. Property terms and conditions tightened to address concerns related to valuations and civil unrest and Aon teams continued to negotiate with underwriters on Strikes Riot and Civil Commotion as well as valuations language.
Q2 Product Summary
Automobile (Moderate)
Large losses, inflation and adverse claim trends continued to create a moderate-to-challenging environment as insurers remained focused on achieving profitability and continued to impose modest price increases. Single plaintiff claim settlements continued to increase (>$5MM average) putting pressure on program structure, attachment points and pricing. Capacity was generally sufficient; however, some insurers often offered coverage only in conjunction with other supporting products. Coverage and program design enhancements remained achievable.
Casualty / Liability (Moderate) Market conditions remained generally moderate, although challenging risk classes, risks with adverse loss experience, and programs with low deductibles or attachment points experienced challenging conditions. General Liability renewals experienced flat pricing. Workers Compensation market conditions continued to be competitive, with modest price decreases. Lead Umbrella and Total Umbrella / Excess Liability programs experienced price increases trending toward double digits. Insurers remained focused on critical and emerging risks including biometric privacy, forever chemicals (e.g., PFAS), wildfire, and Traumatic Brain Injury (TBI), and looked carefully at the treatment of defense costs. Creative solutions and alternative forms of collateral proved valuable as economic uncertainty continued. Availability of competitive Buffer and Structured programs increased. The recent banking crisis has had minimal impact on collateralized programs as exposed insurers quickly mobilized to support clients in swapping Letters of Credit issued by impacted financial institutions.
Cyber (Soft) Market conditions continued to become more competitive following the trend that began in late 2022, as headwinds subsided due to improved insurer loss ratios and increased capacity availability. The new capacity that entered market in prior quarters continued to impact incumbent towers and drive pricing down in the excess layers. Risk differentiation - including class of business, year-over-year improvement of controls, and previous market adjustments - remained a key price driver. Insurers continued to increase underwriting scrutiny related to privacy exposures and data collection, including biometric information, pixel tracking, and new privacy/consumer protection regulations. Increased privacy litigation and enforcement of privacy and data protection regulations continued. Faced with upward trends in ransomware claims activity, insurers sought to stabilize and protect their portfolio performance from systemic loss events that could jeopardize profitability. Identifying the right long-term insurer who understands your risk and is willing to customize policy wording to address your concerns and response strategies remained critical to achieving superior outcomes.
Directors & Officers (Soft) The market remained competitive, with pricing down significantly, driven largely by increased supply as insurers continued to seek growth, combined with a reduction in new buyers (IPOs and deSPACS), creating fewer opportunities. Client industry, growth, claims activity and changes in risk profile factored heavily into pricing results. Newly public companies going through their first or second renewal continued to experience material premium decreases, while established public companies experienced flat to moderately decreased pricing. Notwithstanding the pricing dynamic, public companies faced challenges related to a heightened risk environment driven by economic and other macro conditions such as higher interest rates, inflation, regional bank impacts, supply chain challenges, growing geopolitical and cyber risks, and an active regulatory framework. Securities Class Action claims activity was a topic of underwriting discussion as it increased year-to-date in 2023 despite decreases in 2021 and 2022, as were ESG disclosures as derivative litigation relating to ESG and DEI showed no signs of subsiding.
Marine (Moderate)
Overall, Marine market conditions remained moderate. In the Cargo space, various industries such as cars, life science and retail were more challenging but there remained ample capacity. For logistic solutions, market conditions were challenging, and capacity was constrained. The Hull and Liability market remained moderate, with higher risk types experiencing more challenging market conditions. While some insurers continued to focus their appetite and scale back capacity on Excess Marine Casualty placements, other insurers were able to fill the gaps.
Professional Indemnity (Moderate)
Market conditions, including pricing, were generally moderate. New capacity entered the market; however, primary capacity was limited. Some excess insurers remained focused on implementing pricing adjustments. Coverage terms and conditions remained stable. Underwriting was focused on large loss trends. Risk differentiation became more pronounced, and it was more important than ever that clients describe measures they have taken to improve their risk profile. Media sources have become a key source of underwriting information and clients have begun conducting their own media searches to better understand what is out there before meeting with insurers.
Property (Challenging) Market conditions remained challenging and volatile. While insurers actively sought to retain quality risks, especially those in less challenging occupancies, Natural Catastrophe-exposed risks, poor-performing risks, and risks in higher-risk occupancy types faced a more challenging environment. Such risks tended to experience reduced appetite and capacity availability, and significant rate increases due to ongoing concerns related to inflation, reinsurance costs, and weather-related events. Underwriting rigor remained strong and scrutiny of insured values continued, with insurers applying margin clauses or coinsurance penalties where valuations were deemed inaccurate or under-reported. While as of quarter-end, the Canadian wildfires were not expected to result in a significant loss to (re)insurers, the scale of wildfire activity and potential impacts was a significant concern for insurers who increasingly called for the implementation of comprehensive risk prevention measures. Across all Property risks, complete and updated submissions – including loss reports, valuation methodology details, and responses to recommendations – were required. Underwriting and delays were common. Aon urged clients to begin planning at least four to five months prior to renewal and to work closely with their Aon Team to leverage risk modeling tools to better understand and quantify risk. Clients were encouraged to explore options with incumbent and new program insurers, including considering alternative terms and conditions as well as program structures (limits, deductibles, retentions). Innovative solutions such as Parametric Insurance, Alternative Risk Transfer, Structured Insurance, Captives, and Stock Throughput coverage for significant inventory exposures also served as important levers in achieving risk objectives.
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