Insurers say US-led market hardening is accelerating

Corporate risk and insurance managers must steel themselves because the commercial insurance market is hardening across multiple lines and geographies, particularly the US, and at an accelerating rate, according to leading insurers. To make matters worse, some of the leading carriers, particularly in Europe, are prepared to take tough decisions and pull further capacity after a sustained period of ugly results. These were the clear messages sent by the leaders of top global commercial and corporate insurance giants during recent first quarter results. The CEOs of AIG, Chubb, Zurich, Allianz, AXA XL and Swiss Re are bullish about the state of the market. It seems they feel the hardening has finally arrived. The bad news for corporate risk and insurance managers is that the latest round of analyst calls suggest this time it will be sustained. And Chubb’s president and CEO, Evan Greenberg, said hardening rates are being driven by the primary market, rather than reinsurance. The insurance bigwigs also say the market hardening is increasingly widespread. According to results reporting service SeekingAlpha, Peter Zaffino, chief operating officer and CEO of general insurance at AIG, said: “Whether it’s CAT capacity, attritional losses on how capacity has been deployed, we’re seeing rate within the E&S [excess and surplus lines market] as well as the admitted market…it would be consistent throughout the rest of the year. We’ve seen it in financial lines…we’re seeing that momentum…and we would expect that to continue throughout the year.” “This is one that is not just spiking at one line. It’s across multiple lines and in a lot of parts of the world…this is something that [is] hard to predict how long it lasts, but we’re going to lead with, again, risk selection, but also making sure we’re getting paid appropriately for the limits that we put out and the risk that we’re underwriting,” continued Mr Zaffino. Brian Duperreault, AIG’s president and chief executive officer, added: “This pricing isn’t just the first quarter phenomenon. It’s been building through ‘18. And so, it’ll bleed in…there seems to be some acceleration.” The industry veteran added that the market has accepted AIG’s recent aggressive limit reduction and stressed that improvement is truly across the board. “The marketplace has taken note of our broad-based actions to recalibrate our book and aggressively reduce limits, risk and volatility. It is noteworthy that we are seeing corresponding improvements in almost every area, including retail, E&S, reinsurance. And these improvements are not just occurring in the United States, but also in a number of other countries,” said Mr Duperreault. Chubb’s Mr Greenberg was equally bullish and stressed that this was not an isolated or unsustainable quarterly blip. He clearly thinks that this hardening has legs. “Renewal price change, which includes both rate and exposure, was up over 5%. Retention of our customers remained strong across all of our North America commercial and personal P&C businesses, with renewal retention as measured by premium of over 94%. In major accounts in specialty commercial, excluding agriculture, premiums were up 4%. Renewal price change for major accounts was 4.8%, with risk management pricing up 5%, excess casualty up 7% and property up nearly 9%,” he reported. Mr Greenberg also noted improvements in the London market, which finally appears to be sobering up after some poor results. “The rate of increase is accelerating in short-tail and long-tail lines in the United States and in London wholesale in particular,” he said. “I like the tone of the market. I like what I see and what I feel. It’s rational and I see what appears to be continued forward momentum,” he added. The Europeans were typically less bullish. The hardening is happening in Europe too, but the insurers say not as quickly as North America. In addition, a number of the big Europeans are preoccupied with restructuring and localised problems that need sorting out. Bertrand Poupart-Lafarge, CFO of AXA France, was pretty upbeat. He said: “Pricing momentum is building across most lines. The signs are very aggressive on that one.” But, Gérald Harlin, AXA’s CFO and deputy CEO, pointed out that, while North America is hardening, the market overall is not there yet. “Globally speaking…I think that the price environment is improving but I would not say that it’s a strong and hard market. It’s not the case yet,” he said. George Quinn, CFO at Zurich, said the market is definitely hardening in North America but patchier elsewhere in the world. “Perhaps most notably, P&C pricing trends have continued to improve, particularly in North America, and if anything, have accelerated over the course of the quarter. Rate is clearly in excess of claims cost. And the rest of the world trends have remained broadly stable. And we have seen some strong performances, particularly in our Swiss business, as well as from some of our smaller country units,” he said. Allianz Global Corporate & Specialty (AGCS) has posted losses for the last three years and did so again during the first quarter of 2019. The group leadership hinted at some tough decisions at AGCS to return it to underwriting profitability. “The reality is that over the last three years, AGCS has performed at a combined ratio of 100% or more. And one quarter might be that the large losses are high, the other quarter is going to be the natural catastrophe. At the end of the day, the bottom line is always the same. And so, from that point of view, clearly, we are taking actions on the portfolio,” said Giulio Terzariol, Allianz’s chief financial officer. “The direct environment is getting better. I think this was overdue. And I would also tell you that what we are seeing right now is a positive development but [this] might not be enough because there is also currency inflation…this should just be the beginning of a journey of a stronger hardening as opposed to just a short-term question…the whole market needs re-pricing. And then clearly, there are things that we can do also to improve our underwriting and also look at different books,” he added. John Dacey, group CFO at Swiss Re, said pricing is improving, up 5% on average in the first quarter. But more work is clearly needed at Swiss Re Corporate Solutions (SRCS), the group’s corporate insurance arm that has suffered poor results in recent times. Much is clearly expected of Andreas Berger, formerly of AGCS and recently appointed CEO at SRCS, who will deliver his turnaround plan at the beginning of August. “Even though pricing is improving in commercial insurance, we continue the act of pruning the portfolio, and we are conducting a comprehensive review of all business lines and the reserve positions in Corporate Solutions. We’ve got Andreas who has come on board as of the 1st of March. We’ll systematically go through the results. I think the important thing that’s reflected by the growth opportunities here is Corporate Solutions has some very good businesses,” explained Mr Dacey. He said “dynamic management” of the portfolio is underway, that means the group is shrinking certain lines, such as US liability. But Mr Dacey said Swiss Re is also encouraged by the overall rating trends. “We are encouraged by major competitors in this space talking about not only the achievement of price increases but the need for further price increases and are looking for the market to continue to provide some discipline to get to the required rates on all lines…I think if we see the opportunities to grow certain portfolios within [SRCS] we will do so. This is not a business we’re trying to shrink…but we are trying to fix [it] in a major way and that will require some parts of it to shrink materially,” he added. Marsh also reports that the global commercial insurance market is hardening and at an increasingly aggressive rate (see story on page 3). But its figures suggest rating movement is just as pronounced, if not more so, in several regions outside the US, including Europe.

Insurers say US-led market hardening is accelerating

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