European market to stabilise further with rate decreases on the cards in H2

Brokers predict that European insurance buyers will see the market stabilise further in 2024 and may begin to see more widespread softening for key risks in the second half, as insurers chase growth and capacity begins to chase risk.

However, there remain questions about the ripple effects from the reinsurance market, where things have eased but remain tough.

The global and European commercial insurance market has calmed down during the past year after rapid hardening, with 1 January 2024 renewals much less erratic as insurers looked to get back on the front foot after radically rewriting their books.

Marsh’s Global Insurance Market Index shows that European commercial insurance rates recorded an average rise of 4% in the last quarter of 2023, outpacing the global average of 2%. But the increase was lower than the 6% rise at the end of 2022.

Enrico Nanni, chief commercial officer for Europe at Howden, told Commercial Risk that 1 Jan renewals were more stable and he believes that the European market will properly flatten out this year, and could even start to soften in the second half as insurers chase growth.

“I think this year insurers are going to try to keep some discipline, but I believe they will go more for growth. So I expect the market will really flatten out. If halfway through the year capacity is not filled then there may well be a bit of a rush in the second part that will start bringing rates down because insurers have targets to hit,” he said.

The broker added that the softening may not be market wide and feels things could turn in buyers’ favour line by line, following the example set by financial lines over the past 12 months.

“So it might not necessarily be widespread but I think we will start to see insurers chasing the business down the curve,” he said.

“You can see it coming because insurers are making money, in the same way you could see the market hardening when loss ratios were not sustainable. Remember the carriers are all making an underwriting profit now,” he added.

Christos Adamantiadis, CEO at Marsh McLennan Europe, expects the market to continue to stabilise this year for European buyers as capacity grows.

“We continue to see new capital flow into the market and this is likely to help the market remain stable for the remainder of 2024,” he said.

He made this prediction despite obvious market headwinds, and warned that there will be exceptions to the rule.

“If you take into consideration the current geopolitical unrest, increased frequency in CAT and weather-related events and the continued economic environment, you would be forgiven for saying the market is likely to be volatile. However, markets, both direct and reinsurers, have generally been able to weather the storm,” said the broker.

“There are, of course, exceptions, and markets with high CAT-exposed portfolios, particularly European CAT, will be under more scrutiny than others, and capacity will still come at a price,” he added.

Brokerage Miller believes that as capacity chases income, the London market may be at the top of the “slippery slope into softer market territory”. However, it also stresses that this is not universal and many CAT-driven risks are set to remain challenging.

In its latest London and International Market Update, Miller says: “Aggressive pursuit of new business, coverage broadening, limit increases, defending of market share, deductible changes, premium relief and more may well start to creep back in numerous lines of business. Algorithmic follow carriers are supplementing available risk capacity. We are entering a phase of the market cycle that will test underwriter resolve and discipline.”

Mirco Ceron, head of the facultative P&C team at Miller Brussels, said that on the facultative reinsurance side, the London market for European risks is expected to remain stable as insurers keep a “disciplined approach”.

And there is already softening in some markets, he said. “Although rare, it is also notable that, in some markets, the competition is starting to gently push rates down. This was observed in France more than elsewhere. Nevertheless, rates are generally stable, with renewals flat or up, to a maximum of plus 5% to plus 7.5% depending on the cases. Loss-hit accounts are still seeing some increases in deductibles and captive retentions where applicable.”

Europe outpaces global average

According to Marsh, commercial insurance rate rises in Europe have now outpaced global price increases for the past five quarters.

Marsh said global property rate increases continued to moderate for buyers in Q4 2023, but rates in Europe were still up 7%, and above the global average of 6%. European rates were largely influenced by catastrophe events in the region, including earthquakes in Turkey, flooding in Greece and Germany, and hailstorms in Italy, the broker said.

Europe’s casualty insurance rates rose 6% on average in Q4 2023, according to Marsh’s index, again outpacing the global average of 3%. Europe recorded a 7% pricing drop in financial and professional lines as capacity fuelled competition. Cyber insurance rates trended 5% lower for European buyers in the last quarter of 2023, while global pricing saw a 3% drop.

Howden’s Nanni said the European commercial insurance market appears one year behind London, where rates have already begun to soften in places. “So there are still increases in continental Europe and we think this is the tail of last year’s increases in London,” he said.

Nanni explained that although the European primary market is stabilising overall, it remains extremely varied by country, size of business and risk.

The broker said that countries that were affected by a lack of capacity and rate increases last year – like the Netherlands and Germany – were more stable at year-end. But more difficult conditions are now occurring in other countries that haven’t previously adjusted.

“So the Netherlands is fine, it is now easing off. It was a good renewal season there, whereas at end of 2022 there was a serious lack of capacity. Whereas there were some more increases in Italy, and more prominent on the large accounts,” said Nanni.

On the other hand, he said the market is flat to down a touch in Spain, which is one of the European countries where things are improving for buyers.

Nanni said large European clients face a more volatile environment than SMEs.

“There is bifurcation between the SME and mid-market and then large clients. SMEs always face less volatility so increases here are purely adjustments for asset values and inflation in some specific lines, but certainly less volatile than the large corporates. Large corporates have paid more,” he said.

And then, of course, the European market is moving at different paces depending on your risk. Property is tough following heavy cat losses last year, as well as any lines impacted by inflation or heavy claims, said Nanni.

“In Europe, it is the cat losses that have caused many problems,” he said. “Clients have to accept higher prices following the floods, windstorms and so on. Loss ratio in agriculture was very high last year in several countries and property was the same. So these lines went up at year-end.”

“Then there was a 30% impact from inflation on motor. Construction is another line where costs have gone through the roof, and consequently CAR business interruption has gone up, not in terms of rates but in terms of value of the projects. If you were spending €100m to build a stadium, now you are seeing €160m, and that means more insurance costs even though the rates are the same or similar,” he continued.

However, European financial and cyber lines softened “significantly” at year-end after big rises, said Nanni. “So there has been some big volatility on some of the specialty lines,” he said.

Marsh’s Adamantiadis said the European market continues to be competitive, with large insurers adopting a more aggressive approach to new business and client retention.

This, combined with new entrants, is creating a competitive market for clients in most sectors, he said.

Adamantiadis said the market is “generally” consistent and stable across Europe. “Composite insurance pricing in Europe remained generally stable across most lines of business and geographies,” he explained.

Overall property saw modest pricing increases, he said. But the broker added that countries with higher nat cat and weather-related losses – such as Germany, Italy, Greece and Turkey – are seeing higher-than-average pricing on property risks.

Casualty is mostly stable but some clients experienced double-digit pricing increases in excess casualty at 1 January, he said.

“Insurers are keeping a close watch on the impact from social inflation. For US-exposed clients, we are likely to see pricing continue to firm, in some cases combined with capacity restriction,” said Adamantiadis.

He too reports that increased competition among carriers and new capacity has helped prices fall for cyber and D&O risks at year-end compared to prior quarters. “However, insurers continued to scrutinise systemic cyber exposures and accumulation of risk,” he said.

Miller’s Ceron said the 1 January London facultative reinsurance market for European property risks was “notably more orderly” this time around, with a “narrow gap between expectations and the actual market dynamic than in 2023”.

Fac rate corrections were mainly seen on nat cat lines in territories affected by secondary peril events, such as the Italian floods, Slovenian floods, Greek wildfires and the Turkish earthquake, he explained.

“And the appetite in some industries is still being restricted by some insurers when risk quality is not at the required level,” said Ceron. “For instance, insurers are now more disciplined than in the past on more complex industrial operations such as recycling, chemicals, food, plastic, warehousing and sawmills.”

“Capacity remains sufficient provided the right terms and conditions are obtained, except in certain very specific cases such as those outlined above,” he said.