Expanding insurer appetite globally, but increased scrutiny and risk differentiation, says Aon report

In global terms, pricing increases have moderated and volatility has stabilised, with the most notable exception of cyber, according to Aon’s Q4 Global Market Insights report. It says new capacity has entered the market and is being deployed strategically, with a focus on minimising volatility.

While insurer appetite is expanding, global underwriting is seeing increasing scrutiny and risk differentiation is more important than ever, says the broker. It adds: “While most risks are renewing with total limits at expiring levels, there is a growing trend amongst insurers to reduce maximum limits offered, leading to more layers and coinsurance per placement. Sub-limits for high-hazard risks are under pressure.”

North America is seeing a less volatile, more competitive market continue to emerge, especially for in-appetite risks and placement types, with the exception of cyber, the report says, with underwriting focused on risk profile, industry and size segmentation. Insurers remain conservative on long-tail lines as runaway jury verdicts and legal fees continue to accelerate at a pace faster than inflation. Some new capacity has entered the market, while more is expected to become available in early 2022.

US
The property rate environment moderated slightly from Q3 to Q4, with profitable, limited catastrophe-exposed risks experiencing flat to modest single-digit rate increases, says Aon. Risks with adverse loss histories or in challenging occupancy classes are experiencing slightly higher increases. Rate increases on renewal continue but are now averaging in the low single digits after 17 quarters of a positive rate environment.

Capacity remains ample for attractive, loss-free risks, but Aon says that underwriters are inquisitive about indirect time element exposures, as well as how replacement cost values are being calculated. Modest, single-digit rate increases are expected in Q1 2022.

“A significant pricing deceleration has occurred for casualty/liability, and single-digit rate increases are now common, with the exception of risks in certain industries, or with adverse loss experience or challenging exposures, such as fire potential,” the report states. It even notes that for well-performing risks, and where capacity is abundant, some rate reductions have been experienced. It adds that underwriters are asking more questions than ever before, particularly with regard to certain chemical compounds (eg PFAS) and fire exposures.

Cyber insurers are strengthening underwriting and introduce new exclusionary wording, and the report states: “Insurers continue to tighten their management of global aggregate capacity based on class of business, attachment point and cybersecurity control posture… while new capacity is expected to enter the market in 2022, it likely will not represent a net gain to the total available global capacity for cyber. Aon is working with clients to deploy alternative risk transfer strategies such as captives, fronted arrangements or larger self-insured portions of a programme, to assist in obtaining desired limits.”

Continued rate pressure is expected for at least the first half of 2022 and, according to Aon, on a risk-by-risk basis, insurers will continue to require retention increases, extensive underwriting data and information, as well as limiting aggregation reductions, and may also limit coverage.

On the D&O front, Aon says that capacity from new market entrants, as well as from existing insurers, is making an impact, albeit typically in mid/high-excess attachments, while favourable risks generally have sufficient capacity and many are renewing with only single-digit increases.

The report notes that the primary workers compensation market is competitive for most risks, with rates hovering near flat. “Insurers are increasingly aggressive in their pursuit of new business as workers compensation remains one of the most profitable lines for insurers in the commercial risk sector,” the report states.

Asia-Pacific
The Aon report notes that the region is seeing more favourable market conditions, albeit in pockets. “New market entrants and a shift in insurer focus toward growth have been key factors in stabilising pricing, particularly for in-appetite exposures and occupancies, well-managed risks, and risks with a low natural catastrophe footprint. However, cyber, some elements of casualty, professional indemnity and complex property remain significantly challenged,” the report reveals.

However, Aon warns that the divide in market conditions between in-appetite and out-of-appetite risks is growing and expected to become even more pronounced during the coming months, with the former experiencing a far greater moderation in pricing.

New capacity has entered the market in some spaces, says Aon, but D&O, professional indemnity and cyber placements continue to experience constraints. “There has been little or no movement in deductible requirements across most policy lines with the key exception of cyber, where retention requirements continue to increase. There is a growing number of insureds exploring deductible options to help offset increases in broader risk transfer spend,” it says.

Aon points out that global underwriting mandates continue to be imposed on local underwriting portfolios, adding that coverage is heavily scrutinised and restrictions for infectious disease, silent cyber and contingent business interruption continue, driven largely by reinsurance requirements.

Latin America
Market conditions remain firm but with pockets of opportunities, depending on geography, client segment and product, the report states. “Underwriting in the corporate segment has become more conservative, with a focus on reducing volatility through best-in-class risk selection and limiting single-risk exposure. Cyber, D&O and energy are among the products/industries that continue to experience significant capital constraints and coverage restrictions,” says the report.

Pricing is firm across most geographies and products, with the key exception of property risks in Brazil and Argentina where natural catastrophe exposure is minimal. Aon adds that capacity is constrained and, in some areas, contracting as underwriters are under pressure to reduce volatility and improve underwriting results.