Mixed primary market outlook for 2024: Zurich

Zurich has painted a mixed picture for European insurance buyers next year with some areas, such as marine, stabilising, and others, such as nat cat property and motor, remaining more difficult. The insurer’s group CUO Penny Seach told Commercial Risk that Zurich expects continued rate pressure for nat cat exposed property risks in 2024, especially around secondary perils outside the US. She said ensuring that insured values are adequate in a persistent inflationary environment is set to remain a big focus. Amid increasing pressure on the liability market, where broadly loss trends are higher than rate trends, Zurich thinks there will be a “stronger focus” on the level of capacity deployed and increasing attention on coverage. “The focus on broader systemic or accumulation risk exposures will deepen,” said Seach. She added that the US liability market remains challenging and expects rate increases to continue to rise in 2024. Zurich also thinks that liability risk is set to rise in Europe over the next few years as new regulations come into force. This may, of course, ultimately drive rates higher on this side of the Atlantic too. “Regulatory changes, specially across the EU, will drive a shift in the legal landscape over the next few years. While we don’t anticipate the same level of severity as seen specifically in the US, we do anticipate an increase in frequency and in level of settlements over the next few years across the EU,” said Seach. Motor insurance, which is currently hardening globally, is set to remain an area of pressure next year, added the CUO. Meanwhile, she thinks that continued pressure on health insurance for European buyers may drive some to self-insurance and captive structures. But there will also be some areas of the market that stabilise next year, according to Zurich. It expects marine insurance rates to be stable, for example, as long as there aren’t any significant loss events. However, Zurich expects continued discipline on terms and conditions for marine risk, especially around aggregation exposure, said Seach. “A watch on areas of potential supply chain disruption caused by geopolitical events, specifically around China and Taiwan, will continue,” she added. Meanwhile, the financial lines market, which is currently very competitive and softening, is also likely to see rates stabilise in 2024 as insurers respond to broader economic and regulatory factors, predicts Seach. She believes the focus on ESG considerations will continue to deepen. And finally, she expects insolvency rates to reach normality next year, after falling since the pandemic, which could lead to a “strong correction of market appetite”. “While this would not directly affect the largest international groups, if combined with a hard landing of the European economy, it could initiate a pro-cyclical tightening of both banking and insurance capacity for mid-market and small-medium enterprise customers,” said Seach. Looking nearer-term, Seach previously told Commercial Risk that the insurance market is looking much more stable for European buyers at year-end renewals. But there remain some difficult areas – such as cat-exposed property, US liability and construction risks – while the D&O market is softening for many, she added. A big factor in where the primary market will head next year is the 1 January reinsurance renewals. They have been much more difficult for insurers of late, particularly for nat cat property risks, and contributed to a more prolonged hard insurance market than some predicted. Broadly, Seach expects property reinsurance renewals to continue to be tough at year end, with more focus on Europe than before, but stability and less impact across other areas. “In property, a rebalancing of risk sharing between insurers and reinsurers took place earlier in 2023 and this is forecasted to continue at year end with reinsurers holding ground in terms of required rate and retention levels,” said Seach. “Property cat, particularly US cat, has been a key topic for reinsurers over the last couple of years, with significant hardening in the market, and we anticipate seeing continued rate pressure for cat-exposed business and a focus on secondary perils and climate change. We expect stronger shifts across Europe than previously seen,” she added. When it comes to casualty, Zurich thinks reinsurers’ focus will be on US exposure and PFAS (Perfluoroalkyl and polyfluoroalkyl substances) at coming renewals, as well as covering inflationary trends, which reflects the stance of the broader market. Seach expects the marine reinsurance to remain stable. “But there continues to be a focus on Russia-Ukraine-Belarus exclusions, as well as ongoing discussions about enhancing the cyber exclusionary language for greater consistency,” she said. No significant primaty market impact is expected from engineering reinsurance, she continued. But the CUO believes some impact may be felt when the extent of “broad coverage” becomes more evident in 2024/2035 and the following years. Zurich also anticipate greater stability in financial lines reinsurance. “However, there may be some downward pressure on ceding commissions for proportional treaties. Discussions regarding updated versions of war cxclusions in cyber insurance remain ongoing,” said Seach. And she doesn’t expect any hardening of lack of support from the reinsurance market for credit lines. “The limited hardening we witnessed in 2022 was mostly led by the poor performance of other products,” concluded Zurich’s CUO.

Mixed primary market outlook for 2024: Zurich

Property cat reinsurance renewals set to remain tough

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