Insurance market finally shows signs of hardening but European P&C relatively flat

The commercial insurance market is finally showings signs of hardening, as nat cat risks, a growing number of specialty lines and those with bad loss-history experience rate increases at renewal, risk managers and brokers have told Commercial Risk Europe. However, the market for standard P&C risks remains competitive in Europe, with buyers still able to secure similar terms and prices at renewals. The 31 December 2018 insurance renewals appear to have finally brought an end to ten years of soft market conditions. Experts suggest that companies renewing on the same rates, terms and conditions are getting a good result, with cost reductions hard to come by. For others, it seems the time has finally come when they will be asked to put more money in the pot. On the back of record nat cat losses in 2017 and a spate of incidents in 2018, insurers have racked up the costliest back-to-back years ever and have increasingly focused on profitability. This has helped push the insurance market further into hardening territory than the end of last year, when price increases tended to be limited to nat cat exposures. Tracey Skinner, director of insurance and risk financing at BT Group, described the insurance market as “selectively hardening”. She said it remains flat for good P&C risks, but even here those that have suffered claims might now experience some rate increases. Ms Skinner said renewing on the same price, terms and conditions would be a good result for many buyers and that those in certain sectors, with certain risks, or bad loss histories, should now expect to pay more. “Insurers are being selective around certain classes of insurance. Financial lines, construction, professional indemnity, D&O, maybe even marine and a touch of aviation. In other areas as well, around P&C business, there is selection over individual risks that have shown deterioration in their claims position – it is creeping in there if you have had losses,” said Ms Skinner. But she said that if companies are clean from a P&C perspective, and are an attractive risk, they can expect to come through renewals with things “remaining as is”. “I think good at the moment is renewing flat and on the same terms and conditions wording-wise as you had before. If you are not one of the heavy sectors like construction or mining, and your business is looking healthy and you are showing a benign claims picture, you should fare ok,” she told CRE. “But if not, then you are likely to need to put some more money in the pot or raise your retention levels. Those in this camp would be quite lucky to have a renewal go through in this next period and see a reduction,” Ms Skinner added. She also said buyers are likely to be impacted by deteriorating policy terms, conditions and extensions. “Things that perhaps you were given in the past for free may no longer be available. There may be a tightening of the landscape when it comes to some of the wording,” said Ms Skinner. Paul Knowles, CEO of JLT Specialty, told Commercial Risk Europe, that there is a slight dislocation between London and some international insurance markets, but overall conditions were “very turbulent”. The market remains fairly competitive for P&C risks but some other lines saw proper hard-market conditions, he added. Mr Knowles said there were market sectors that hardened significantly, sectors that were firming with rates flat to up 5% to 10% as the new norm, and some areas, particularly more standard P&C lines, that remain competitive. “It was really a mixed market at the year-end,” said Mr Knowles. Key areas like aviation, marine, particularly on the cargo side, and some of the more bespoke specialty classes, witnessed a “real rate increase”, he said. In addition, some of the cat property, D&O from Australia and the US, and some of the professional indemnity classes, particularly around construction, saw “proper hard-market conditions”, he added. “In some of those sectors, such as construction and PI, the market conditions are as bad as they have ever been,” explained Mr Knowles. Many of the other specialty lines were in the firming category, with rates flat to up 10%, he said. Corporate property and casualty remained quite competitive, continued Mr Knowles. But international cat property was much more challenging, he continued. “The rate increases we anticipated coming through in 2018, following HIM losses of 2017, didn’t really materialise in the first half of last year. But in the second half, and particularly from a London perspective, there was a stiffening of underwriters’ resolve and a more consistent message around rate requirements. Unlike other years, where towards the year-end there has been a collapse in confidence from the market and it has not they have chased premium, we didn’t get that at the last 31 December renewals,” said Mr Knowles. He said this discipline was clearly visible from a broking perspective and not just limited to Lloyd’s, which heavily cut back underperforming business following a performance review. “Other markets have all gone through this discipline,” said Mr Knowles. “But all these markets are still very keen to attract the right sort of business. This isn’t a market that is shutting up shop. It is a market you can engage with and get great deals out of. You are just going to have to work that much harder to do it,” he added. Ghassan Mansour, managing director of corporate risk and broking for western Europe at Willis Towers Watson, said that while there does not seem to have been much change in the rating environment month on month in Europe, the aggregation of small increases during the last half-year has been more apparent. This has contributed to an inconsistent market that overall shows some hardening, he explained. “There is quite a lot of market noise, with inconsistencies in rate movements across lines of business and between countries, with a sense of a hardening rate environment in western Europe, particularly on loss-making and nat cat-exposed risks. Casualty rates have also been inconsistent but general liability has been flat to relatively small adjustments reflective of loss records,” Mr Mansour said. Jean Rondard, co-head of CRB for France, head of risk management at Gras Savoye Willis Towers Watson, said the commercial insurance market is a “paradox”, with conditions varying a lot depending on size of business and type of risk. Large companies heavily exposed to nat cats or with serious losses now face hardening in Europe and beyond, he added. Renewing on the same terms is a good result, he told risk managers. For SMEs and mid-market companies, conditions remain soft, explained Mr Rondard. But the more you go into the upper end of the middle market and for the large accounts, or global and international accounts, it is much “more difficult for buyers”, he explained. “For the large accounts with exposures or bad loss ratios, it was quite hard negotiating by the end of 2018. Negotiations are definitely tougher, which didn’t happen at last renewal. It is clear that on accounts significantly exposed to natural events, or with losses, we have experienced a hard market at last renewals. We didn’t experience this last year or for the last ten years,” said Mr Rondard. “For specific large accounts, very exposed, very sensitive to loss ratios, the increase has been two-digit percentage points. Globally, we can say achieving a renewal without any increase is a good result and performance… So the market is turning,” he added. Mr Rondard has seen some carriers asking for single-digit-percentage automatic increases on certain business across the board. Anders Esbjörnsson, director of group insurance at NCC, said that on main P&C lines he generally managed to renew with the same rates, but noted that after a number of years it seems the market has reached the bottom. “There might not be opportunities to decrease rates, but there are still opportunities to secure a relatively stable renewal,” he said. He also stressed that it was possible to increase limits and improve some conditions for the same costs. “So, in that sense the market is still soft. We focused on improving cover rather than working hard for rate decreases. This is based on buying from the London and local market,” he explained. But he also made clear that for some risks – particularly financial, crime and D&O cover – things were tougher. “So, in these areas, we start to see a hardening market,” said Mr Esbjornsson. Carl Leeman, chief risk officer at Katoen Natie, said his company had not encountered a hardening of the property market in Europe, but said things are certainly hardening in the US for nat cat-exposed risks, and storm in particular. “On property storm coverage in the US, things are getting more and more expensive. It is not easy to get coverage, capacity is limited and therefore the price is going up. I don’t like this but I can understand it. For the non-storm part, the renewal was fairly flat, with storm cover driving rates. We are based in Texas and heavily concentrated in the Houston area, so if based in other areas of US it might not be the same story,” said Mr Leeman. He also said there have been “big issues” for some US liability risks that are becoming “more and more difficult and expensive to place”. Trucking activities in the US are a “particularly big challenge’, said Mr Leeman. “This is the result of the very big indemnifications people get when they have an accident. I don’t think the problem will improve or rates will go down any time soon,” he said. Mr Leeman has not had any problems with any of his other three-year insurance programmes, or had signals form the market that things have deteriorated and there is any need to talk again. Sabrina Hartusch, global head of insurance at Triumph, said she has not observed any non-life rate increases at year-end renewals in Europe. However, she stressed that this was likely a result of her company’s good claims ratio. Without this, the situation could well have been different, said Ms Hartusch. “Overall, we still experience this to be a very customer-friendly market, focusing much on price… I have also seen terms and conditions rather widening than narrowing down,” she said. She did experience a slight hardening in some European corporate life insurance areas such as accident and health and pension risk. Meanwhile, there was hardening in the US for both non-life and life insurance lines, Ms Hartusch added.

Insurance market finally shows signs of hardening but European P&C relatively flat

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