- By Chris Hardcastle
- 07 September 2023
During a long period of remediation in the DA market, spanning from 2018 to 2022, a huge amount of change occurred - with Lloyd's and London insurers revising and rewriting portfolios, terms and conditions in order to tighten up what had been a protracted loose operating environment for many years prior.
European, US and Asian markets were in all sync. The soft market that went before had lacked discipline, and the cracks were showing - not just in the results that the market was reporting, but also evidenced in the actual failure of several Lloyd’s syndicates and insurance companies in London, Gibraltar and other European jurisdictions. Many factors were behind these issues, but fundamentally over-supply and pricing inadequacy prevail.
By 2022, the market had a better handle on rates, commission and deductibles. Surely by now the players that did not deserve a seat at the DA table had been weeded out? Insurers who had failed, along with brokers and MGA's who had not performed. Underwriters’ books had been cleaned up significantly, and there was a feeling that if we could get underlying property valuations nailed down, we would have a chance at some good years. Then Hurricane Ian happened.
Hurricane Ian caused significant market loss. But it also shone a light on the fact that all the work the market had done was still not enough. Rates could still be higher. Deductibles could be more appropriate. Valuations should not be a talking point; they are hygiene. Reinsurers, often compressed in the middle of insurers and retro/capital markets suddenly stood firm. Capital markets had lost confidence in catastrophe reinsurance, at a time when global interest rates were becoming back to them, and the reinsurance market had a higher hurdle to clear to win their attention and finances. Sick and tired of being ceded less when times are good and picking up the pieces when times are bad, reinsurers put a marker down - enough is enough.
The main takeaway from reinsurance renewals in H1 23 was that cedants catastrophe reinsurance deductibles broadly doubled, 1 in 6 attachments became 1 in 12 and so forth. Obviously, reinsurance rates increased substantially, and deductible increases are a tool to manage that. But now a lot of SME volume business - which is typically the subject of the majority of the delegated authority world - is falling into the retentions of insurers, focusing their minds further still.
This does not just apply to property. Whilst properly business is still the larger segment of the delegated authority world, reinsurance changes have affected most lines of business. Casualty, with its tail and opportunity for reserve release, also attracts more underwriting capital, as do other lines - marine, financial lines, some resurgence even in cyber (views on war clauses depending…).
The property market at large also changes - rates jump, and in places like Florida rates soar and deductibles for wind appear to find a new normal. But the market maintains its income, albeit for vastly reduced exposure, as is the way of the hard cycle. This in turn creates opportunity to diversify agg - and it moves far. Canada, Europe & Australia have all seen recent price increases, at varying levels. Local markets have also been reducing their agg whilst maintaining income, so Lloyd’s players find more attractive opportunities in those jurisdictions, using the agg that was once placed on the Gulf of Mexico. The market will keep a keen eye on wind activity in 2023 - Hurricane Idalia made a landfall in the ‘least bad place’ but what if it had not? In spite of all the changes made, and analysis which highlights resilience to severe storms, we will all be watching closely.
Canada, Europe and Australia have all seen recent price increases, at varying levels. Local markets have also been reducing their agg whilst maintaining income, so Lloyd’s players find more attractive opportunities in those jurisdictions, using the agg that was once placed on the Gulf of Mexico. And the market will keep a keen eye on wind activity in 2023, we are in the hurricane season and in spite of all the changes made, and analysis which highlights their resilience to severe storms, we will all be watching closely.
But as all this takes place, some signposts are appearing for growth. Some of that growth is simply to cover inflation and rate on existing exposures, but some is also growth in exposure. Various syndicates and companies are privately discussing increases for 2024, and whilst they may be cautious and controlled, they are forward steps.
For agents and brokers who have genuinely partnered with their underwriters and capacity providers over the trailing period, working together to manage risk and properly adapt to conditions, there will be opportunities ahead. Others who may have fought back and sought to continue to prior cycle may struggle a little more.
The market is prepared to entertain opportunity, as always. As we walk thorough 2023, we will see the impact of changes in results from Lloyd’s and other carriers. Prevailing conditions look good and that might just open things up a little for 2024.
As the market seeks to capitalise on favourable conditions and look at new opportunities Miller’s delegated authority team is here to talk. We are a team full of talented, market respected brokers who can help to guide and shape opportunities and to help our clients navigate through and capitalise on prevailing market conditions.
By 2022, the market had a better handle on rates, commission and deductibles. Surely by now the players that did not deserve a seat at the DA table had been weeded out? Insurers who had failed, along with brokers and MGA's who had not performed. Underwriters’ books had been cleaned up significantly, and there was a feeling that if we could get underlying property valuations nailed down, we would have a chance at some good years. Then Hurricane Ian happened.
Hurricane Ian caused significant market loss. But it also shone a light on the fact that all the work the market had done was still not enough. Rates could still be higher. Deductibles could be more appropriate. Valuations should not be a talking point; they are hygiene. Reinsurers, often compressed in the middle of insurers and retro/capital markets suddenly stood firm. Capital markets had lost confidence in catastrophe reinsurance, at a time when global interest rates were becoming back to them, and the reinsurance market had a higher hurdle to clear to win their attention and finances. Sick and tired of being ceded less when times are good and picking up the pieces when times are bad, reinsurers put a marker down - enough is enough.
The main takeaway from reinsurance renewals in H1 23 was that cedants catastrophe reinsurance deductibles broadly doubled, 1 in 6 attachments became 1 in 12 and so forth. Obviously, reinsurance rates increased substantially, and deductible increases are a tool to manage that. But now a lot of SME volume business - which is typically the subject of the majority of the delegated authority world - is falling into the retentions of insurers, focusing their minds further still.
This does not just apply to property. Whilst properly business is still the larger segment of the delegated authority world, reinsurance changes have affected most lines of business. Casualty, with its tail and opportunity for reserve release, also attracts more underwriting capital, as do other lines - marine, financial lines, some resurgence even in cyber (views on war clauses depending…).
The property market at large also changes - rates jump, and in places like Florida rates soar and deductibles for wind appear to find a new normal. But the market maintains its income, albeit for vastly reduced exposure, as is the way of the hard cycle. This in turn creates opportunity to diversify agg - and it moves far. Canada, Europe & Australia have all seen recent price increases, at varying levels. Local markets have also been reducing their agg whilst maintaining income, so Lloyd’s players find more attractive opportunities in those jurisdictions, using the agg that was once placed on the Gulf of Mexico. The market will keep a keen eye on wind activity in 2023 - Hurricane Idalia made a landfall in the ‘least bad place’ but what if it had not? In spite of all the changes made, and analysis which highlights resilience to severe storms, we will all be watching closely.
Canada, Europe and Australia have all seen recent price increases, at varying levels. Local markets have also been reducing their agg whilst maintaining income, so Lloyd’s players find more attractive opportunities in those jurisdictions, using the agg that was once placed on the Gulf of Mexico. And the market will keep a keen eye on wind activity in 2023, we are in the hurricane season and in spite of all the changes made, and analysis which highlights their resilience to severe storms, we will all be watching closely.
But as all this takes place, some signposts are appearing for growth. Some of that growth is simply to cover inflation and rate on existing exposures, but some is also growth in exposure. Various syndicates and companies are privately discussing increases for 2024, and whilst they may be cautious and controlled, they are forward steps.
For agents and brokers who have genuinely partnered with their underwriters and capacity providers over the trailing period, working together to manage risk and properly adapt to conditions, there will be opportunities ahead. Others who may have fought back and sought to continue to prior cycle may struggle a little more.
The market is prepared to entertain opportunity, as always. As we walk thorough 2023, we will see the impact of changes in results from Lloyd’s and other carriers. Prevailing conditions look good and that might just open things up a little for 2024.
What will it take to unlock that?
Clearly articulated opportunity goes a long way, but trust and partnership remain key factors at all parts of the cycle. The trend is for agents to deploy ever greater levels of technology and science into their pricing and risk selection at point of binding - agents more and more utilise intelligent tools to price risks and are often highly sophisticated and foster confidence in market capacity. Granular data reported clearly is essential.As the market seeks to capitalise on favourable conditions and look at new opportunities Miller’s delegated authority team is here to talk. We are a team full of talented, market respected brokers who can help to guide and shape opportunities and to help our clients navigate through and capitalise on prevailing market conditions.
