European buyers face small price rises but stable year-end renewal

Insurers are predicting a much more stable year-end renewal for European firms but they expect rating to remain healthy and increase further for several key risks as they tackle higher reinsurance costs, inflation and claims volatility. There is certainly not much talk of softening, except for a few areas bucking the overall trend, notably D&O that is expected to remain easier for buyers despite some concerns over the sustainability of current market pricing.

“The commercial insurance market in continental Europe is showing some signs of stability, which is good from both a buyer and a provider perspective, especially compared to what many clients have experienced in the last two or three years at renewal in terms of dramatic shifts in risk appetite, pricing and capacity. I expect that next year the industry will move into calmer waters marked by more stable prices and levels of capacity,” said Ralph Brand, president of continental Europe Insurance at Sompo international.

“However, in some lines of business – mainly in property/energy, casualty and cyber – I expect that capacity will continue to be limited and possibly even further scaled down for certain types of exposures, and that prices will continue to show an upward trend,” he added.

He expects that the hot topics that have dominated the market this year will continue in 2024. “In particular, continued general inflationary trends impacting various lines of business, nat-cat exposures in property/energy, the social inflation developments we see especially on US liability and motor, as well as a re-emergence of criminal cyber activity,” said Brand.

Etienne Champion, chief underwriting officer (CUO) for Asia Pacific and Europe at AXA XL, agreed that European corporate clients can expect more predictable market conditions at year-end renewals. He said there will be “fewer surprises” because of structural market changes over recent years.

But Champion expects pricing to remain “healthy” for insurers across most lines of business.

“We continue to see healthy rating levels in almost all lines of business. However, significant price adjustment is not envisaged of the amplitude we have seen in the past. But we also have to be realistic and look around at key trends that we think will maintain underwriting discipline across the market,” he added.

These big three trends are higher reinsurance costs, inflation and loss volatility.

“It doesn’t seem like inflation will come down as fast as was predicted. This pushes the rate because losses are directly linked with inflation. The second factor why we think healthy pricing will remain is increased reinsurance costs. We heard at Monte Carlo the reinsurance community saying ‘we may be okay on the capacity level’, the property limits were adjusted quite brutally last year, ‘but we don’t think we are there in terms of pricing this capacity’. That is a cost that will be added to our P&L for next year and why the healthy rating environment has to remain,” said Champion.

“The last issue is the higher level of volatility, which mean either more reinsurance to offload the volatility at increased costs, or some insurers retain part of the higher volatility, but that means more capital that you have to borrow. So if you consider inflation, increased reinsurance costs, higher levels of volatility, either offloaded or kept in retention, these three drivers are why even after a structural change we think we shall still see a healthy rating environment, but more predictability for clients and brokers,” he added.

Global head of distribution at Allianz Commercial Jeremy Sharpe said his firm is still seeing rate increases in the single digits across most lines and regions. Although he stressed that these rises have “moderated”.

He added that large multinationals continue to want to see higher capacities that are limited by the “challenging” reinsurance market.

Champion said the rate of price increases for property risks has “definitely” slowed this year. He said average property pricing is up in the high single digits.

Penny Seach, group CUO at Zurich Insurance, said the European property insurance market currently has a broad appetite for multinational business, offering more “stable conditions” compared to previous years. “Rates in some areas seem to have stabilised after significant corrections in recent years,” said Seach.

She said property rate increases are still being felt on accounts with challenging risk quality, loss histories and significant catastrophe exposures. “Exposure to peak peril nat cat will likely remain under pressure. We expect continued focus on modelling and understanding of secondary perils and climate change impact. But with a variety of mid-sized cat events throughout Europe, we do expect to see pressure on domestic reinsurance programmes,” said Seach.

She added that there is sufficient capacity in the liability market with pricing and coverage generally “stable and competitive”. But she said strong rates remain the norm, and in line with the last renewal cycle, for accounts with high exposure to US risks, as well as loss leaders.

“While there remains a high level of available capacity for liability programmes, the continued impact of litigation abuse in the US will drive a continued focus on limit management and rate adequacy for US exposed risks. PFAS (per- and polyfluoroalkyl substances) remain an area of specific focus. Changing EU regulation will be an area to watch going forward, specifically the proposed refreshed Products Liability Directive. Motor remains a tough line of business, with a continued watch on inflation and ensuring it keeps pace with loss trends,” said Seach.

Champion said concerns over social inflation is supporting “more robust pricing’ in casualty business, especially for portfolios exposed to the US, which is seeing more and more nuclear verdicts. He also thinks reinsurers are now turning their focus to casualty and the impact of US losses, which may well ultimately harden the casualty market.

Moving beyond the two key lines, Seach said that marine insurance buyers can expect a “fairly” stable market at 1 January barring any major marine catastrophes. “In terms of coverage, the market is anticipated to remain stable, though a high level of underwriting discipline will remain prevalent,” she said.

She explained that engineering capacity has broadly remained unchanged through 2023, with continued discipline in coverage and wordings.

But the clear exception to the generally stable or slightly hardening primary market is D&O, where rates are falling and look set to continue doing so at year-end.

“In professional lines – notably in D&O – we have seen some softening. Continental Europe does not seem to be hugely behind the trends we have noticed in the UK and other markets here,” said Sompo International’s Brand.

“Financial lines is the outlier,” agreed Allianz Commercial’s Sharpe. “We see a softening in financial lines although macroeconomic indicators are still concerning and recession risks in key economies are far from behind us. There is an influx of capacity in the market and new players with an overall increased appetite on primaries. We will keep our disciplined underwriting approach in this segment and expect that the pendulum will swing back again when the inevitable losses are to come,” he said.

Champion said D&O is the notable exception to the wider market trends. “We have seen pricing declining steadily over past 18 months following two years of steep price correction and capacity restraints. D&O rates have fallen for the fifth consecutive quarter and we are now nearing the 2019 levels of pricing. This reflects that a lot of nimble capacity has come into the market, putting pressure on the price,” he said.

But he believes that D&O rates are getting near to unsustainable levels, and urged his fellow insurers to learn lessons and start maintaining discipline in order to avoid a return to the huge price increases that troubled buyers in 2019 and 2020.

“I would like to warn the industry that sustainable pricing levels will be required at some point to avoid repeating the turmoil we have seen in the correction over the past few years,” he said.

Adding: “We are getting near to the point of whether the rates are unsustainable. Yes, there is price correction because there is that new, fresh and, some would say, naïve capacity that has come into the market, but let’s not forget those that are in the $50m to $75m layers of the D&O programmes are still the same players that lived through the hurdles of 2019 and 2020. I am calling for a collective memory of what happened.”

Seach said there is broad appetite for multinational business across the financial lines market. She said conditions are more stable overall than in previous years.

“Rates for well-performing business have stabilised after significant corrections in recent years, with some lines of business even seeing modest rate reductions. Against an increasing regulatory landscape, this remains an area to watch, and we expect to see a stabilisation again as market participants respond to broader economic and regulatory factors,” she said.

Seach added that cyber insurers will continue to monitor claims trends in light of the rise in reported Ransomware incidents in 2023 and react accordingly. Other insurers and brokers have said that the recent jump in ransomware is set to slow the current cyber market softening and may well lead to rate hardening next year.

“We have seen rates coming down and we think this is a reflection of the improved cybersecurity and maturity among the insured companies, and a reduction in ransomware activity in 2022. But the 2023 trend is clearly going in the opposite direction, so we think further adjustment in pricing may be required to ensure this fast-growing market is growing sustainably,” said Champion.

“Capacity will remain limited in the cyber market and the expected uptick in cyber claims will lead to continued discussions with clients about their level of resilience and what capacity and terms we as an industry can offer for an acceptable price. In addition to the pure risk transfer, discussions about risk prevention and crisis response services will gain more importance in our discussions with clients and distribution partners,” added Brand.

Allianz Commercial’s Sharpe said he is seeing mounting interest from large and multinational companies in alternative risk transfer solutions given the current market conditions as we head into year-end renewals.

“Companies are increasingly looking at smarter ways to self-insure, not just through captives but also through multi-year agreements and parametric solutions. Traditional insurance policies still have their place for the majority of customers, but demand for these alternative structures, crucially where the client can exercise greater control, is growing,” he said.