Analysts at Risk Placement Services (RPS) have cited how the US property market currently finds itself in turbulent times, due to a combination of internal and external factors affecting market dynamics, adding to pressures that are being felt by all aspects of the insurance value chain.
Chief among these is a hardening market in which increasing rates are seeing premiums rise greater than 50% for customers in certain sectors.
Wes Robinson, National Property President at RPS, states that the recent reinsurance renewal period had a big impact on these rates during a time where direct insurers are already facing “serious cost pressures.”
He saids: “The average insurance carrier that deploys catastrophe business is looking at 30% to 80% increases in its reinsurance costs. This would be tough to bear at the best of times, but with the recent pressure on underwriting results in the direct market, many insurers have no choice but to pass these increases to their insureds.”
Moreover, while the recent renewal period has hit the market hard, RPS Area President, David Novak noted that the recent hardening of rates is more an acceleration of a trend that has persisted for a number of years.
Novak, said: “We’ve been in a hardening market for four or five years now, but increases across 2023 are expected to come at an accelerated rate. This has been driven primarily by poor underwriting results, increased cost of reinsurance and shrinking of capital in the insurance marketplace.”
Further, figures recently released by global ratings agency AM Best, showed that the US P&C market reported a $24.3 billion net underwriting loss for the first nine months of 2022, which nearly quadrupled its total underwriting loss recorded over the same period in 2021.
RPS, also noted how growing underwriting losses have been worsened due to climate change, which had ultimately has led to an increase in the frequency and severity of catastrophic events, which includes the recent California wildfires, flood events, and the giant freeze that occurred over Texas in 2021.
Additionally, global economic losses stemming from nat cat events were estimated to be $360 billion in 2022, with just $140 billion of those losses being covered by private or public insurance entities, according to Gallagher Re.
Elsewhere, RPS Area Executive VP for Property, Christa Nadler, highlighted how the ongoing conflict between Ukraine & Russia is also having a major impact on the property reinsurance market.
She said: “Even issues that are not property-related are leading to increases in the cost of property reinsurance, simply because the reinsurance market is global and wide-reaching.
“When reinsurers face these increasingly large losses across a variety of different classes and geographies, they sometimes respond by increasing rates across the board, and that is what we are seeing in the property market this year.”
Analysts also noted that insurers are putting additional pressure on valuations, requiring their policyholders to update the value of their portfolio for rising inflation, as well as the increased cost of construction.
RPS also noted how for agents, the challenges that face the market will also mean that conversations around risk placement strategies are going to get more difficult, however this does not mean that they should avoided.
Robinson, said: “These conversations need to be started early – as early as possible really – because renewals are becoming a much more complicated process. Insureds need to be made aware that they will be facing increased premiums at renewal and they could be quite large in some cases.”