Insurance Marketplace Realities 2024 Spring Update – Property

Rate predictions: Property

*Individual accounts may experience greater increases or reductions depending on account specific metrics.

	Trend	Range
Non-CAT exposed		-5% to +5%
CAT exposed		-5% to +10%

• Property market rate conditions have eased towards the end of Q4 '23 and into Q1 '24 renewals, with an acceleration in market competitiveness seen as each renewal month passes.
• Insurers began 2024 reluctant to support a flattening of renewal rates. As the sequential months of Q1 '24 have transpired, and the increasing number of incumbent insurers losing renewal lines due to an inflexible stance on rates, insurers are being forced to readjust their mindset to this more competitive market.
• While increases of new reinsurance capacity from traditional reinsurers has been marginal, there has been a substantial increase in available reinsurance capacity from capital markets through instruments like ILS cat bonds and sidecar arrangements. Increased access to reinsurance capital enables the direct insurer market to offer more stable and, in many cases, increased capacity on renewals or new business.
• Due to especially powerful El Niño conditions, the 2023 Atlantic hurricane season resulted in a large drop off in landfalls along the U.S. East and Gulf Coasts. This lack of a large magnitude industry event contributed greatly to insurer/reinsurer profitability and subsequent rate stabilization.
• As of March 14, 2024 strong El Niño conditions were still being observed in the Eastern Pacific. According to NOAA (National Oceanographic Atmospheric Administration), a transition from El Niño to ENSO-neutral is likely by April-June 2024 (85% chance), with increasing odds of La Niña developing in June-August 2024 (60% chance). It should be noted that during La Niña, Pacific Ocean conditions are correlated with a higher level of more intense U.S. East and Gulf Coast landfalls.
• A familiar cycle of “what is achievable” on renewals has re-emerged in the current property market environment. Traditionally when property market conditions begin a more favorable trend it begins with downward pressure on rates as the first achievable result. True to prior market trends, underwriting discipline has thus far been maintained on the more restrictive terms, coverages and deductibles that were achieved by insurers during the prior year’s hard market.

Insurers remain fully focused on valuations to demonstrate to their reinsurers that their portfolio data is robust, accurate and balanced when deploying capacity.

• Inflationary pressures on building replacement costs have substantially eased to start 2024 as evidenced by FM Global and Marshall & Swift average building cost inflation trends showing flat to low single digit increases for building replacement costs. The net result of this break from recent years inflation trends is insurers are no longer benefiting from substantial increases in premium on the same risk portfolio when factoring in minimal increase in rates.
• The imposition of margin clauses or occurrence limit of liability endorsements (OLLE) is likely to be reserved for accounts with obvious and drastic under reporting as we have seen a shift towards only adverse accounts being impacted.
• Appraisals and other back-up data to confirm the accuracy of the insureds statement of values provide insurers with more confidence regarding value accuracy and a greater comfort level in assessing risk.
• To that end, while replacement costs valuation increases seem to be stabilizing, proper asset valuation will remain an important issue and should be viewed as an annual risk assessment.

Catastrophe risk: The new normal is real

• As stated previous in our fall 2023 Insurance Marketplace Realities report, the definition of natural catastrophe risk continues to be broadened from the traditional perils of earthquake, flood and windstorm in high hazard zones, a heightened concern from underwriters incorporates such secondary perils as severe convective storms, wildfires and freeze into the new definition.
• A total of 28 large $1 billion+ losses hit the U.S. insurance market in 2023. Of these losses the vast majority (26) were due to secondary perils such as severe convective storm, hail, winter storm, freeze and flood. These losses continue be to of great concern as they are primarily absorbed by direct insurers due to increases in 2023 CAT treaty retentions.
• Severe convective storm losses alone in the U.S., contributed some $60 billion to another year where the market absorbed $100 billion+ in losses making it another historic year in terms of catastrophic losses.
• Unexpected shocks to the supply chain continue to concern businesses including the ongoing conflict in the Red Sea (effectively closing the Suez Canal), and the more recent collapse of the Francis Scott Key Bridge (blockage of the Port of Baltimore shipping harbor). These two events continue to highlight the concerns over coverages like ingress/egress and contingent time element.

U.S. 2023 billion-dollar weather and climate disasters

This map denotes the approximate location for each of the 23 separate billion-dollar weather and climate disasters that impacted the United States through August 2023
Source: National Centers for Environmental Information

As the 2024 market continues to stabilize and capacity comes back into the market, a shift in program design and delivery will be evident in every facet of the property market.

• Many insurers are focused on expanding premium writings by aggressively pursuing new business and offering expanded lines on renewals. However, the overall risk profile of each individual insured remains crucial in determining renewal results, considering factors like CAT footprint, loss history, capacity required and risk occupancies.
• Expanding insurer capacity vertically into layers that were considered buffer layers has become a more consistent theme in Q1 24’. Buffer layers were very problematic and expensive to fill during the capacity constrained market over the past few years.
• Oversubscribing individual layers during the marketing process is key to leveraging incumbents and new markets to offer more aggressive pricing to secure renewal orders.
• Alternative risk transfer options continue to be in high demand, especially for clients with challenging risk profiles, poor loss experience and/or significant ROL in program structures.
• Whether annual or multiyear, parametric and structured solutions will continue to be the most traded ART products in 2024. The addition of these products helps to address insurance gaps, disintermediate traditional placements, create diversification and help control volatility in the commercial market.
• Clients continue to evaluate program changes such as, increasing deductibles, Increasing deductibles, self-insurance participation, policy limit and catastrophe limits purchased. Insureds taking this approach seek to further align their risk purchasing strategies rather than a responding to marketplace restrictions.

Quarterly average rate trends: January 2024 — March 31, 2024

• As the property market continues to evolve, we recommend that all key stakeholders remain keenly aware of the market dynamics affecting the various industries/occupancies that exist as budgetary expectations may fluctuate based on risk profile, industry loss events and market conditions.

Industry spotlight

Real estate, hospitality and leisure

Rate predictions: Real estate, hospitality and leisure

	Trend	Range
Non-challenged occupancies		-5% to +5%
Challenged occupancies/CAT-exposed		+7.5% to +12.5%
100% Florida accounts		+10% or greater

With various challenges such as rising interest rates, inflation and the increased severity of natural catastrophe losses, it is imperative that our REHL clients work with their WTW team to develop a clear and concise renewal plan. Starting the process early with a commitment to quality data collection, as well as being able to articulate their valuation methodology, business continuity, disaster recovery and capital expenditure plans to underwriters will help them differentiate themselves from their peers.

• Account metrics
  • Property value and business interruption calculation methodology continues to be scrutinized
  • Loss performance
  • Natural catastrophe exposure footprint
  • Program limits and sublimits should be revisited based on revised property valuations, client’s risk tolerance and corporate strategy
• Redefining CAT perils – Secondary CAT perils
  • Severe convective storm (tornado, hail)
  • Wildfire
  • Freeze
  • Hurricane season – Entering a “neutral year”
• Managing your risk
  • Structured program
  • Annual aggregate retentions
  • Captives