Property casualty reinsurance was the most challenging segment of the market during the recent recovery.
Today’s property insurance market is highly unpredictable and teetering between a naturally risky and a non-risky business.
Property-casualty reinsurance, which typically accounts for the lion’s share of property-casualty insurers, was the most challenging segment of the market during the Jan. 1 renewal. As insurers adjust to market conditions and take into account maximum limits—thereby easing some pressure on capacity and putting the required limits on programs at renewal—the result is that current demand for protection exceeds supply.
The definition of a natural disaster is broader than traditional winds and earthquakes because of secondary hazards such as wildfires, severe storms, and winter snows. For example, for the first time, underwriters are actively reviewing accounts for the risk of a freeze following industry losses from 2021’s Winter Hurricane Yuri. The expansion of the definition of property casualty reinsurance makes risk modeling and pricing difficult. Many insurers have experienced a +50% increase on 1/1 deals and have taken higher retainers off their coverage. These increased costs are expected to be passed on to insurance buyers in many cases.
Current trends and challenges for insurers
Price: In the year The price increase in 2023 was due to the analysis of values, because most of the text writers were surprised by some amount of losses, and because of the increased text discipline on the subject. For Q3 and Q4, asset valuations are expected to remain an area of focus for underwriters, although the increase in valuations appears reassuring. Unless a detailed explanation of renewal prices is provided, underwriters may determine limits or marginal clauses in reported prices.
Valuing: For 2023, the most sought-after risks for underwriters will accelerate in the range of +5 to +15%. Loss-prone and less desirable risk accounts should expect +15% to +30%. And people who are prone to natural disasters can expect to experience high pressure regardless of the nature of the disaster and should be prepared for + 20% + 40% acceleration pressure. Accounts that are extremely challenging in terms of natural disasters should be prepared for increases of +50% or more.
As rates accelerate, service providers actively seek to protect quality risks and less challenging housing. Carriers are reducing capacity as property damage reinsurance coverage and loss estimates increase due to inflation. As in 2006, following Hurricanes Katrina, Rita, and Wilma, wind potential will be very short, especially for Southeast threats. Florida-based properties will be extremely challenging in maintaining adequate limits on affordability and affordability. Many accounts with significant exposure in Florida can increase rates by more than +50%. At the same time, California’s seismic market has been facing increasing capacity challenges over the past two quarters.
Refocus on the insurer-insured relationship
As price pressures continue in the second half of 2023, insurers will need to prepare for renewals five months in advance.
Third and fourth quarter renewals will see some insurers lose property casualty reinsurance limits for the year with no interest in adding more. Most insurers will exceed annual premium and growth targets before the end of the year and therefore avoid entertaining additional risks or may expect more challenging late-year renewals that could strain existing provision. As a result of reduced capacity in the market, customers may experience substantial delays in receiving renewal quotes from underwriters.
Insurers who disclose inflation on their portfolios and proactively monitor risk assessment avoid overly conservative inflation from reinsurers by analyzing their insurance portfolios. Strong market relationships play a critical role during renewals, especially when new capacity is difficult to find, and reinsurers play an important role in filling gaps in programs that are leaving the property loss scene. Reinsurers who value insurance partnerships will ultimately do better as the market improves.
Rick Miller is managing director and property practice leader at Aon Risk Services.
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