London market seeing more benign conditions but uncertainty remains

Improved results by many insurers in the London insurance market have supported a transition towards more benign market conditions, characterised by increased competition, capacity, and a more positive outlook for buyers, according to Lockton’s H1 2024 London Insurance Market Update.

However, it adds that this optimism come against a background of uncertainty. “Anecdotal evidence exists of longer reporting tails on certain casualty lines than anticipated at the time of underwriting. This is impacting profitability for some insurers and has led to a more restrictive and disciplined approach to terms, conditions, and deployment of capital for those insurers operating within this environment,” it says in the update.

In addition, social inflation remains a challenge for many insurers with significant US casualty exposures, with many insurers reporting adverse development in their historic accident years. Natural catastrophe risks continue to figure among insurers’ key concerns and remain a major topic at renewals for property risks, says Lockton.

For D&O, professional indemnity insurance and cyber, the broker notes an increasingly tight regulatory environment, with areas under scrutiny including ESG disclosures and the use of artificial intelligence. Market conditions for cyber insurance buyers has been improving due to an increase in available capacity; however, claims are also on the rise, driven by AI, deepfake technology and growing concerns over cyber-related property damage, says Lockton.

Looking at the rating environment, for property in the UK, the declining trend in rate increases is expected to continue in 2024, with Lockton noticing an increase in offers for long-term agreements while renewal rate increases seem to hover between flat and 2.5%.

For the US, Lockton is starting to see signs of an easing in the rating environment. But it adds: “Overall, challenged occupancies and heavy critical catastrophe exposed accounts remain difficult to place. A bifurcated market is still evident; competition for preferred risks is increasing and underwriters’ willingness to allow volatility to rise remains low. These dynamics continue to push programmes towards a ‘shared & layered’ approach to leverage the global marketplace and ensure programmes are filled out at the most competitive available terms.”

As for casualty, in the UK, a competitive casualty market is keeping positive rate change at bay in the first quarter of 2024, says Lockton in the update. “As year-on-year rate variance remains favourable for buyers, fresh capacity combined with ambitious market growth targets is putting clients with well managed risks and strong loss experiences at the heart of competition. Conversely, carriers look to narrow cover to counteract generous rating, and the legislative US landscape continues to influence UK and European courts. Markets are continuing to push rates upwards in areas they perceive as high risk, including but not limited to healthcare & pharma, heavy consumer products or businesses with significant US and auto exposures.”

For the US, casualty capacity in the London Market has stabilised over the past months and this trend is expected to continue at least over the first half of the year. Lockton says rate increases generally remain at the mid-high single-digit level, with well-performing industries seeing some softening.

But it adds: “Challenging placements for the upcoming year will continue in industry classes such as transportation, with trucking in particular being extremely difficult. Accounts with large auto fleets are also being scrutinised by underwriters due to concerns regarding large settlements and increasing verdicts. New York construction capacity continues to be limited.”