Brian Wanat
Chief Broking Officer, Commercial Risk Solutions, United States
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Offsetting factors were at play in Q4. While the market braced for continued impacts from Hurricane Ian and a volatile economy, insurer performance continued to strengthen and competition remained strong.
Regional Overview
- Market conditions remained moderate as insurers focused on profitable growth, although impending treaty renewals, ongoing inflationary pressure, supply chain challenges, geopolitical instability, and climate-driven events weighed heavily in underwriting discussions. Competition and appetite was healthy but insurers closely monitored their exposures and deployed capacity based on careful risk selection.
- The market for publicly traded D&O showed clear and consistent signs of softening, with flat to decreasing premiums and significantly increased capacity, although complex risks experienced an upward pricing environment. Claims trends remained a focus for insurers, particularly, the backlog of claims going back to 2018 and 2019 as well as SPAC litigation.
- Property insurers continued to react to the impacts of Hurricanes Ian and Fiona, inflationary pressure on asset values, and (the then impending and anxiously anticipated) challenging January treaty renewals. Natural Catastrophe exposed risks experienced a very challenging environment.
Q4 Market Dynamics
Pricing (+1-10%)
While insurer performance remained strong, these converging factors led to a modestly upward pricing environment: insurer anticipation of upcoming treaty renewals, cost escalation resulting from core and claims inflation, ongoing supply chain challenges, and an increase in climate change driven insured events.
Capacity (Ample) Capacity remained sufficient across most products as new capital continued to enter the market and existing insurers sought to retain and grow their market share. Inflation-driven increases in values and losses led to additional capacity demand, and alternative solutions such as captives, reinsurance and non-traditional program structures gained prevalence.
Underwriting (Prudent) Insurers were focused on achieving growth and retention targets while prioritizing risk selection and maintaining underwriting discipline. A two-tiered market continued; in-appetite, well-performing risks with comprehensive underwriting information experienced a collaborative and flexible underwriting environment while non-preferred risks experienced more challenging conditions.
Limits (Increased) Inflationary pressures continued to increase exposures, as well as verdicts/settlements, which drove up coverage limits. In addition, some Excess insurers continued to require higher Primary limits. When needed, increased limits were generally available in the market; however, client demand for restoring limits reduced in recent years has not materialized at the pace expected.
Deductibles (Flat) Deductibles remained stable; however, increases were required for challenging risk types such as those with Natural Catastrophe exposure, as well as poor performing risks, or risks deemed to have insufficient controls.
Coverages (Stable) Coverages remained stable with broader terms achieved in cases where insurers leveraged coverage as a differentiator. Trade Sanctions/Sanctions Limitations clauses became more common.
Q4 Product Summary
Automobile (Moderate)
Moderate market conditions continued as single plaintiff outcomes continued to rise in value (>$5m average). In response to market and societal changes, Alternative Risk Transfer solutions were explored with greater frequency.
Casualty / Liability (Moderate) Primary and low-layer Excess placements were stable across pricing, structure, and limits. Excess layers were more at risk of instability due to rate relativity. Individual risk characteristics drove pricing outcomes. Underwriting remained disciplined in general but greater scrutiny was applied to loss-impacted risks. Trade Sanctions / Sanctions Limitations Clauses were reviewed and modified to manage insurer exposure.
Cyber (Challenging) Market conditions remained challenging but healthy competition and improved insurer loss ratios dampened price increases and underwriting scrutiny, especially for previously adjusted risks and those which demonstrated year-over-year improvement of controls.
Directors & Officers (Soft) Competition remained strong as new capacity mobilized and existing insurers sought to retain market share, serving to dampen price increases and enhance underwriting flexibility. Broad coverage was available, but underwriters were conservative where excess derivative demand investigations and discovery periods were concerned.
Property (Challenging) Quality Non-CAT exposed risks experienced a benign environment while CAT exposed, high-hazard occupancy and poor performing risks saw capacity constraints and significant cost increases, especially for middle and high Excess layers. The Terrorism market became more volatile, influenced by events in Eastern Europe. Wind capacity was severely limited. Valuations remained under scrutiny due to recent losses that exceeded amounts shown on the statement of values as well as high inflation and increasingly complex business interruption exposures.
Trade Credit (Moderate) Insurers remained focused on economic conditions and insolvency rates. Appetite and capacity deployment were highly dependent on industry sector and client financials.
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