Marsh results suggest hard market here to stay as nat cats and inflation dominate

The rising frequency and severity of natural catastrophes, the risk of social inflation and its impact on insured values, and a firmer reinsurance market will ensure that risk managers cannot expect a softening insurance market any time soon, based on Marsh’s second quarter earnings statement. The Marsh Global Insurance Market Index shows price increases of 9% year-over-year in Q2. This marks the 19th consecutive quarter of rate increases in the commercial P&C insurance sector. During the analysts’ call to discuss the second quarter results, John Doyle, Marsh McLennan group president and chief operating officer, said the index shows both global property insurance and global casualty rates up 6% on average. Global financial and professional lines excluding cyber increased low single digits, while cyber rates rose nearly 80% in some geographies. “The index skews the large account business, however, small and middle market insurance rates continue to rise as well, although less than for large complex accounts,” Doyle said, according to results reporting service Seeking Alpha. Dan Glaser, Marsh McLennan president and CEO, said that while GDP growth may slow because of the difficult global economic situation, rising inflation and a continued firm insurance market will ensure that his company’s revenues remain strong. Glaser and his colleagues also reported that, given the complexity of the overall risk scenario currently facing risk managers, the broker’s advice on structuring solutions is more important than ever. Martin South, president and CEO of Marsh, also noted continued strong demand for captive services from customers grappling with increasingly challenging risk exposures in a tough market. “Even if GDP growth softens as predicted, higher inflation will increase insured values and likely cause higher loss costs. Additionally, P&C insurance pricing conditions remain firm, we are helping clients navigate an environment where underwriters remain cautious about where and how they deploy capital and terms and conditions are tight in some product lines. Insurers also continue to account for the rising frequency and severity of catastrophe losses, the risk of social inflation and firmer reinsurance market,” explained Glaser. “When the world is unsettled demand for our services rises. We are helping our clients adapt to this rapidly changing landscape and navigate long-term challenges as well as opportunities. We are increasingly harnessing the collective power of our firm to guide clients as they deal with issues such as geopolitical risk, the pandemic, cyber threats, global supply chain disruptions, capital markets volatility, climate change, tight labour markets and new ways of working. Even if a recession does emerge, Marsh McLennan is well positioned to perform through the economic cycle. Since we went public in 1962, we have grown EPS during all recessionary periods,” he added. South stressed that the current market phase is very challenging for risk and insurance managers worldwide. Captives are a good option in such a market, he said. The impact of reinsurance market conditions on the primary market is often overlooked when risk managers try to work out what they should expect in coming renewals. On this front the news is not so good for risk and insurance managers. “Turning to reinsurance. Guy Carpenter’s US Property Catastrophe Rate on Line Index showed increases of approximately 15% through midyear, the largest increase since 2006. Midyear renewals reflected one of the most challenging property markets in many years with pricing driven by inflation, escalating geopolitical risk and loss experience. Throughout the first half of the year, we saw some reinsurers take tougher positions on specific terms and conditions and shift portfolios to limit capacity in certain lines of business or geographies,” said Doyle. While Marsh’s customers may be feeling the pinch, its investors will be happy with the company’s second quarter and first half numbers. Consolidated revenue in the second quarter of 2022 was $5.4bn, an increase of 7% compared with the second quarter of 2021. On an underlying basis, revenue increased 10%. Operating income was $1.4bn, an increase of 11% from the prior year. Net income attributable to the company was $967m. For the first six months, consolidated revenue was $10.9bn, an increase of 8% on the first half of last year. On an underlying basis, revenue increased 10%. Operating income was $2.8bn and up 9% from a year ago. Net income attributable to the company was $2bn, or $4.01 per diluted share, compared with $3.51 in the first six months of 2021.

Marsh results suggest hard market here to stay as nat cats and inflation dominate

Firming reinsurance conditions will hold back any softening

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