17 March 2023FeaturesInsurance

Market hangover: the impact of 2022 on trends this year

4 key trends
• More work for insurers to gauge ultimate cost of 1/1 and aftermath
• Rate hikes of 2022 giving way to rate moderation—maybe
• ‘Sleeping giant’ Bermuda becomes ‘most widely impacted market environment again’
• COVID-19 and hard market spotlight talent issue and drive hiring scrambleThe ultimate cost of 2022 for the re/insurance industry, with its “chaotic” 1/1 renewal, is still up for debate.

What is clear is that moving into 2023 there have been structural and coverage changes across the market, while a war for talent has reignited. The idea that 2023 could be yet another unprecedented year does not seem far-fetched.

In this shifting landscape, an Intelligent Insurer panel discussed the industry trends to watch.

Panellists included Jonathan Prinn (pictured left), chief executive officer, London, Inver Re; Karl Hennessy (pictured right), head of specialty broking, McGill and Partners; and Volker Kudszus (pictured center), senior director & EMEA insurance sector lead, S&P Global Ratings, at the virtual discussion held in late February 2023.

Revisiting the renewal hot topics of the 2022 Monte Carlo Rendez-Vous de Septembre Prinn recalled the “three Cs”: climate, capital and conflict. He felt the Cs could also include the disruption wrought by COVID-19 and the huge debt hangover it has left in the financial markets as well as ongoing fiscal stimulus supply chain issues.

“Those factors can probably be summarised as creating a chaotic 1/1 2023 renewal process,” Prinn said.

Hennessy added: “It all got a bit histrionic towards the end of the year, but ultimately the market muddled through.”

But insurers looking for the cover they wanted at the right price have ended up with gaps in their programme, he conceded.

“There have been some structural and coverage changes, which are probably of more concern to some of the specialty markets where the inward and outward risk don’t match,” he said.

“There’s some work to be done in the aftermath by some insurers to get a better understanding of what the ultimate cost of that 1/1 renewal process will be.”

All things in moderation

Rate moderation is a trend to watch this year following the price hikes of 2022, according to Hennessy and Kudszus. But such changes are not yet a done deal.

“We even saw clients asking for higher cover because the claims cost is increasing via double-digit inflation.” Volker Kudszus, S&P Global Ratings
Kudszus said: “We would assume that across the board in property-catastrophe lines we will see the June/July renewals moderating rates in the US after a couple of years of increases.

“On the primary side we see rate increases moderating after some stepped increases. In many of the primary markets, we saw that insurers have been able to increase rates.

“Given the current inflation level, we even saw clients asking for higher cover because the claims cost is increasing via double-digit inflation.”

Hennessy commented that the reinsurance market hasn’t been performing as well as the insurance market, with the latter experiencing 20 consecutive quarters of rate increases over the last five years.

“To some extent, the expectation going into 2023 was that we’d start to see rating momentum moderate and come down,” he said. “Certainly, we’ve seen it very dramatically in the D&O market where rates have come down quite substantially, through the back end of 2022 and into 2023.

“But the reinsurance market, which historically has been the driver of the hard market in insurance, has seen quite significant rate increases, particularly around catastrophe in the US, and Europe, in France, and Germany. There is an expectation that that might push through because that cost has to be passed on.”

This cost does not relate just to reinsurance—it includes the cost of increased retention, which means insurers will try to maintain some of the rate increase momentum throughout 2023, Hennessy said.

Sleeping giant awakens

Prinn said that further trends to watch in 2023 include the fundamental change for the Bermuda market because the “sleeping giant” has become “probably the most widely impacted market environment again, back to the heydays of Bermuda”. There is also the “huge talent war” that has carried over from 2022 into this year and the “massive issue” of diversification for businesses in re/insurance. These trends mean that managing client expectations is more important than ever, he said.

Another significant issue that will rise up the agenda as the market moves into the third and fourth quarters of 2023 is parametric insurance, he added.

“If you can’t buy catastrophe capacity on a traditional risk transfer basis, you can on a parametric basis. Inver Re believes that is an ever-growing part of the industry and part of the market. I’m very interested to see how that develops over the next 12 to 18 months.”

Hennessy echoed Prinn on the continued “scramble” for talent which, he said, was keenly felt in the London Market. It had become “very obvious” during the hard market cycle over the last few years, particularly as many insurers sought to remediate their primary book and with the impact of COVID-19 and remote working, that a number of firms “simply do not have the depth of talent and the bandwidth to deal with those types of situations”, he said.

“That has, to some degree, precipitated the scramble to bring in new talent, at a time when we are having an ageing population in the market. People are retiring and moving on and it’s difficult to replicate that talent overnight.”

Read our companion article to see  what new trends are appearing in 2023?

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