USI Reports Easing of Hard Market in Midyear Property-Casualty Outlook

In its midyear assessment of the property and casualty market, broker and consultant USI reports that the hard market experienced during the January 1 renewal season has eased.  

The report, Commercial Property & Casualty Market Outlook Mid-Year Addendum, presents the following key findings. 

• In the property sector, "large rate increases from 2023 have mostly subsided for the broader market. Rates are flat to up 10 percent for both natural catastrophe (CAT) and non-CAT property with minimal loss history and good risk quality."
• On the casualty side, "for workers compensation, the rate and pricing environment in most US states remains competitive. General/products liability is challenging but with flat renewals in some industry segments."
• Internationally, "new capacity for reinsurers and increased competition from insurance companies have decreased rates, compared to our previous projections."
• In the environmental market, "'forever chemicals' continue to be the top issue, as they increase both liability and pollution claims." 
• The aviation market continues to boast a competitive rate environment, with war liability a possible exception.
• Premiums for executive and professional risk "continue to decrease, albeit at a slower pace, in most major lines of coverage, notably directors and officers (D&O) liability and cyber insurance."

Looking at developments in the first half of the year, USI says that "after the most challenging property insurance market in decades, 2024 is proving to be a more stable and capitalized market. Although some pockets of disruption still exist and challenging risk profiles remain difficult to place, the widespread double- or triple-digit rate increases seen in 2023 have largely subsided for the broader market. Most renewals have seen single-digit increases, with some shared or layered placements seeing rate decreases due to the replacement of more expensive capacity from 2023."

Rates, USI says, "are flat to up 10 percent for CAT and non-CAT property with minimal loss history and good risk quality. While insurers are still focusing on data, valuations and risk quality, the capacity challenges seen in 2023 have vastly improved, with more programs seeing competition on single insurer and shared/layered business, resulting in favorable renewal outcomes for insureds."

It continues, "Single-insurer placements were within the forecast in our January Market Outlook, with most ending at single-digit rate increases if renewed with similar program structures. For those risks where the incumbent non-renewed or reduced capacity significantly, placements often required capacity from the excess and surplus market to maintain expiring limits, which resulted in rate increases at the higher end of the projected range or above."

USI says it saw more favorable renewal outcomes than forecast on CAT-exposed property, with high-quality risks seeing rate changes anywhere from 5 percent decreases to up to 10 percent increases. 

For risks with challenging profiles, such as wildfire areas, unfavorable loss history, unaddressed critical risk control recommendations, high vacancy, or locations with poor risk quality, the rates were still elevated, as more of these transitioned to the excess and surplus market, still seeing rate increases between 10 percent and 20 percent or more.

Reinsurance treaty renewals, the report says, have returned to a more orderly process, with more capacity available or being deployed due to the favorable rate environment, lower losses realized from increased retentions on 2023 treaties, and healthy returns on capital.

After a very disruptive and dysfunctional treaty renewal season in 2023, the reinsurance market is expected to return to total reinsurance capital of $561 billion, which is less than two percent off the prior high of $570 billion in 2021.

This translates to a more stable operating environment for the property insurance market, USI says, with adequate capacity available and less disruption in the renewal process for insureds.

As reinsurers look to maximize returns while rates are elevated, USI expects to continue to see more capacity deployed by incumbent insurers, prospective insurers, managing general agents, programs, or facilities. The additional capacity creates opportunities for insureds to evaluate current or future needs, taking a targeted approach to obtain what may have been lost in previous years due to budget constraints or availability. 

Be it policy limits or specific CAT limits such as flood, named storm, or earthquake, insureds should complete an updated analysis of current limits versus exposures, coupled with catastrophe modeling, well in advance of the renewal. The analysis will provide valuable insights to determine where finite premium dollars should be spent to reduce exposure to uncovered loss.

USI recommends that to maximize their organization's potential, insurers should keep abreast of market developments, identify risks early, and ensure that they have appropriate insurance to mitigate them effectively.

In a "Trends to Watch" section on emerging and evolving risks, the report recommends the following. 

• Leveraging risk control strategies to present accounts favorably to insurers
• Using every available tool to align asset values with industry standards
• Seizing opportunities to positively influence insurance costs, coverage, and overall risk quality