Insurers report further market hardening in early results

The first insurers reporting second-quarter and half-year results say rate increases are on the rise, with hardening conditions spreading to further lines and regions. The changing market in favour of insurers is helping many to deliver decent numbers. The firming market enabled Chubb to report another excellent set of quarterly and half-year results as it benefited from a “flight to quality” among commercial insurance buyers in Q2. Chubb’s chairman and CEO Evan Greenbergsaid the positive pricing environment for insurers continued to improve through the quarter and spread to more classes and risks. “Pricing continued to tighten… while spreading to more classes and segments of business, particularly in the US and London wholesale market. We're also seeing early signs that market-firming conditions are spreading to more territories around the world,” said Mr Greenberg. “We took advantage of some of the best pricing we’ve seen in years,” he told an analyst call, according to results service Seeking Alpha. Mr Greenberg said rates firmed on US major accounts, in excess and surplus lines and through to the middle market. Chubb continued to observe favourable conditions in the London wholesale market, with early signs of an uptick in Australia. Mr Greenberg added that hardening is spreading to the UK company market and certain classes of risk in continental Europe and southeast Asia. “Overall, where rates are moving, they’re firming broadly to varying degrees in [almost] all short- and long-tail classes. Accompanying price increases, terms and conditions are tightening in certain classes,” he continued. Chubb’s CEO said the market hardening is being driven by income and reserving issues, rather than a lack of capital. He believes the market firming is sustainable and will likely spread further. “In my judgement, given some of the market dislocation we’ve observed, including a reset of risk appetite on the part of some, this firming trend is sustainable and will likely continue to accelerate and spread,” he told analysts. He said some classes are now adequately priced and believes there is some way to go in others, with substantial movement still needed in certain areas. Overall, Chubb saw prices increase by about 7% in North America during the second quarter. Prices were up in many P&C areas, including both primary and excess general casualty, D&O and professional lines. New business in North America saw price rises of just over 11%, with major accounts and specialty up nearly 15%, according to Mr Greenberg. Renewal price change for major US accounts was 8.5%, with risk management pricing up 6.3%, excess casualty almost 10% and property nearly 18.5%. Chubb’s London wholesale business saw rates firming across multiple lines of business. Overall rates in in its London open market business were up more than 9%. Property was up 23.5%, marine cargo almost 7.5%, aviation 12% and onshore energy up 15%. D&O rates in the London wholesale market were up 20%. Mr Greenberg added that there remains plenty of capital in the commercial P&C market but it is now more disciplined and being deployed where rates and terms are more adequate. Meanwhile, Beazley tripled profits in the first half of this year, on the back of higher than expected rate increases. “The past nine months have seen a material change in sentiment in our market as heavy claims in numerous lines of business have driven prices higher. In September last year, our 2019 business plan envisaged rate rises well below what we have actually seen in the first half of the year. We accordingly see opportunities for growth in lines of business such as marine and aviation, as well as property, where margins now look healthier than they have been for some years,” it said. Beazley added that upward pressure on rates has increased in the Lloyd’s market because of the market-wide initiative to remediate lines of business that underperformed for several years. US insurers Travelers and WR Berkley also said rate increases are rising as they delivered solid second-quarter and half-year results. Travelers said it secured renewal premium change of 6.7% for business insurance in the second quarter, including rate renewal change of 3.6%. In both cases, this is the highest increase since 2014. The firm said it is the 12th consecutive quarter of higher year-over-year renewal premium change. Meanwhile, WR Berkley said the pricing “environment continues to improve, with rate increases in all lines of business except workers compensation”. Average rate increases, excluding workers compensation, were more than 5% in Q2, it said. The firm said price increases are gaining momentum and firming on both international and domestic US business. It is also seeing a tightening of terms and conditions. “This is a market that continues to go through transition. It's very much, in our opinion, a natural or expected continuation from what we saw in Q1. I think the only difference is that the pace of change seems to be accelerating,” said CEO Rob Berkley, according to results service Seeking Alpha. Mr Berkley said a growing number of commercial insurance carriers are reducing their capacity or line sizes, with more exiting the market altogether. He said there are several “historical signs or classic indicators” of a firming market. “Long story short, it's the same old story… there is a growing amount of pain that is driving the change in behaviour,” he added. Mr Berkley noted that there is mounting evidence that the pain is only going to increase and “undoubtedly drive the market to tighten further”. He said that currently, cat-exposed property cover is hardening the most, with commercial auto a close second. But Mr Berkley also said that components of professional lines, and D&O in particular, are seeing “really meaningful rate increases”. He said general liability has not been as heated but is beginning to shows signs of upward rate movement. Mr Berkley expects to see increasing momentum in liability before the year end. London-listed Lancashire spoke of improved market discipline and pricing in the first six months of this year, despite seeing its operating profit almost halve to $43m from $78m in the same period of 2018. Alex Maloney, Lancashire’s CEO, said he is encouraged by“evidence that the (re)insurance market is now experiencing the long anticipated improvements in discipline and pricing” in many of its core business lines. “In the face of a more cautious underwriting environment and evidence of market retrenchment in the specialty lines in which we write, we were able to take advantage of improving terms and demand,” said Mr Maloney. But he added that recent evidence of better market discipline and pricing will take time to feed through to Lancashire’s bottom line. While Lancashire’s gross written premiums increased to $430m in H1 from $393m, the combined ratio worsened to 86.6% from an impressive 67.1% this time last year. The firm’s net loss ratio deteriorated to 34.5% from 15.1%, with its accident-year loss ratio fairly stable at 40.5%, from 38.7%. Prior-year favourable reserve development fell from $52m to $16m. “While the market overall was characterised by a number of attritional losses in the first half of 2019 and substantial loss creep on prior-year events, it is worth noting that our ultimate net loss estimates for the 2018 and 2017 catastrophe events have remained largely stable, allowing us to deliver a solid combined ratio of 86.6% for the half year,” said Mr Maloney.

Insurers report further market hardening in early results

Want to read this article?

Read Next

Zurich North America names professional liability, cyber leader

Arch Insurance International names deputy CEO

IQUW adds cyber cover to US financial institutions policies

Sompo pledges lead capacity, expansion and local empowerment in France and Spain

Transactional risk market set to rebalance on back of M&A activity, says Chubb

Zurich North America names professional liability, cyber leader

Arch Insurance International names deputy CEO

IQUW adds cyber cover to US financial institutions policies

Sompo pledges lead capacity, expansion and local empowerment in France and Spain

Transactional risk market set to rebalance on back of M&A activity, says Chubb

Want to read this article?

Read Next

Zurich North America names professional liability, cyber leader

Arch Insurance International names deputy CEO

IQUW adds cyber cover to US financial institutions policies

Sompo pledges lead capacity, expansion and local empowerment in France and Spain

Transactional risk market set to rebalance on back of M&A activity, says Chubb

Related Articles