Amwins: Hard market conditions have lasted longer than expected

Despite carriers reporting multiple quarters of improved loss ratios and record earnings, hard market conditions have not abated to the extent expected, with insurers in many cases keeping capacity tight and meaningful rate increases continuing for the time being, according to wholesale intermediary Amwins.

“As we enter the second quarter of 2022, we expected to see more of a slowdown of the hard market conditions than what has materialized.

“Even with many carriers reporting improved loss ratios and record earnings, tightening capacity and rate increases are not quite behind us,” said the firm.

It said that top quartile carriers are “significantly” outperforming the market, with some carriers still needing to do work to achieve rate adequacy based on their portfolio mix.

Amwins also noted that the E&S market is continuing to harden even as certain sectors of the standard market appear to be transitioning to a softer market.

“The market also appears to be bifurcating renewal pricing based on loss performance,” it added.

Carriers continue to shift away from volatility as they cut the amount of limit deployed in high hazard classes, locations, and perils, as well as some continuing to exit classes of business.

In its Q2/Q3 state of the market update, the wholesaler said firm market conditions remained in most lines, but noted that conditions in the excess casualty and D&O market–outside of SPAC and IPO risks–have stabilized.

It also highlighted the potential for meaningful losses in the wider industry from the Russia-Ukraine conflict and highlighted macroeconomic factors such as surging inflation and higher interest rates, which benefit investment returns in the long term but negatively impact carrier surplus in the short term because of unrealized losses on fixed income portfolios.

Property remains bifurcated

In property, the company said a bifurcated market continues to unfold, with moderate rate increases seen for business placed within the standard market, and much more significant upticks in pricing for business in the non-admitted channel.

Non-loss impacted property accounts have typically had rate increases up to 10 percent, with cat-exposed and loss-impacted accounts facing rate rises that are “considerably higher”, the broker said.

“Carriers continue to de-risk their portfolio by limiting their exposure to high-risk perils and locations, including Florida, wildfire-prone areas and coastal property,” the broker wrote.

The intermediary also said property underwriters continue to address attritional accounts by imposing higher deductibles and tightening terms.

Casualty conditions have moderated

In casualty, the broker said that carriers remain comfortable with the rate environment, along with the attachment points and capacity deployed on individual accounts.

“In fact, we have recently seen instances of carriers offering additional limits on single accounts and, at times, cutting rates slightly to remain on the renewal,” the intermediary wrote. “While indications from carriers are that overall rate is still needed, new capacity in the excess space is influencing the rate environment.”

Carriers are cautiously eyeing the continued re-opening of the courts and cases making their way through the system, with an expectation that so-called large jury award “nuclear verdicts” are likely to continue, which could impact market conditions.

Insurers, Amwins said, have been tightening coverage for losses stemming from assault and battery (A&B), sexual misconduct/molestation liability (SML), wildfire and communicable disease in an aim to limit potential exposure to such nuclear verdicts.

Workers comp remains competitive

Amwins also said that the workers compensation line of business “remains extremely competitive”, as the segment continues to report “solid” underwriting profitability and strong reserving levels.

“We’ve seen several carriers become more aggressive in the past six months,” the broker said of the workers comp line, “not only in terms of pricing, but also in terms of the higher hazard business they are willing to underwrite. However, growing concerns include rate adequacy, rising medical costs, the impact of COVID-19 due to the presumption laws as well as overall changes in the workplace.”

“Optimism” in D&O market

In a recent update on the D&O market, Amwins had previously said it was “cautiously optimistic” on conditions easing in the second half of the year. In its latest market overview, the company said that D&O rate increases for most classes remained in a holding pattern of between 5 and 10 percent.

“The initial concerns about high volumes of company bankruptcies and/or security claims following Covid-19 have not materialized, and while inflation is a known concern, its impact on the economy is yet unknown,” the broker said in its latest update. “Thus, insurers and underwriters are taking a more individualized approach to pricing D&O policies.”

In cyber, carriers are showing some optimism regarding clients’ adoption of new security protocols such as multi-factor authentication and endpoint protection, though accounts coming to market without these protections are very difficult to insure.