CAT drives global property rates, competition moderates increases: Marsh

According to broker Marsh, global property insurance rates were driven higher by catastrophe exposed regions and assets in the fourth quarter of 2023, but rising competition among insurers is helping to moderate increases, to a degree.

It’s a sign that property insurance rates are perhaps getting closer to rate adequacy as well, at least on a regional basis.

But, more locally, higher-risk property catastrophe zones are still seeing steep rate increases for commercial property insurance worldwide, while the cost of reinsurance, inflationary effects and overall exposure growth, are additional drivers.

A quarter ago, Marsh said that while rate acceleration was slowing and pricing becoming more stable, the property catastrophe insurance market remained the most challenging area.

Which is reiterated in its Q4 2023 Global Insurance Market Index report, in which Marsh highlights overall slowing of rate increases, but that catastrophe exposed continues to soar.

Marsh said that, for its Index in Q4 2023, “Moderating rate increases for property risks also contributed to the quarter’s results, with increased competition offsetting the impact of strong demand and ongoing losses.”

Global property insurance rates rose by 6%, on average, in Q4 2023, which was a slight fall from the 7% increase in the previous quarter.

Marsh also noted that, insurers in most regions of the world “remain concerned about the impact of inflation on asset values and claims costs during renewal discussions.”

Pat Donnelly, President, Marsh Specialty and Global Placement, Marsh, commented, “At a time of much global economic uncertainty, clients will welcome the increased stability in insurance rates – especially for property exposures – and increased competition from insurers for well-managed risks.

“With 2024 set to be a year of significant geopolitical and economic challenges, we are working closely with clients to develop solutions that will enable them to become more resilient to global events and to take advantage of improving market conditions.”

In property insurance, increases were recorded in every region of the globe except the Pacific, where rates were flat. Underwriters are extremely focused on property valuations, in light of ongoing inflation, Marsh said.

In the United States, property insurance rates were up by 11%, with Q4 becoming the twenty-fifth consecutive quarter in which rates rose.

Increases were driven by “rising reinsurance and capital costs coupled with three years of strong demand, limited new capacity, and loss activity,” Marsh explained.

Property risks with limited nat cat exposure and stable incumbent capacity fared best in the US, Marsh said, while the more catastrophe exposed properties saw steeper increases.

In particular, Marsh highlights challenges in renewals for “risks with losses and/or concentrations of assets in CAT zones, including the Gulf of Mexico, the Atlantic coast, and California.”

Catastrophe deductibles remain in focus for insurers, with clients also retaining more risk still as their deductibles rise, or looking to use alternative solutions such as parametric risk transfer.

In the UK, property rates were nearly flat, with just a 1% rise across the market in Q4 2023, but Marsh noted that, “Insurers remained cautious on catastrophe (CAT) risks and organizations with heavy occupancy or distressed business.”

In Latin America and the Caribbean, property rates rose 6%, but in Brazil insurers were reducing capacity for risks with high loss records and in Mexico insurers “continued to evaluate rates for catastrophe (CAT) exposures following the Category 5 hurricane that hit Acapulco in late October.”

In Europe, property rates were clearly influenced by the catastrophes that occurred last year, with insurance rates up 7% across the region.

Marsh said that, “Underwriting scrutiny continued regarding catastrophe (CAT) aggregates and deductibles,” and that “Property rates were influenced largely by CAT events, including earthquakes in Turkey, floods in Greece and Germany, and hailstorms in Italy.”

In the Pacific, overall property insurance rates were flat in Q4 2023, but here as well there was catastrophe-linked differentiation.

Marsh said, “Loss-impacted and catastrophe (CAT)-exposed insureds typically experienced rate increases.”

Across Asia, where property insurance rates were up 2%, Marsh said that, “Insurers continued to monitor catastrophe (CAT) exposures, particularly in Japan, Taiwan, and the Philippines.”

Canada also saw property rates up 2% with cat risk the key driver, on which the broker explained that, “Increases were mainly driven by risks that were viewed by insurers as lacking focus on engineering and that had poor loss experience and/or critical catastrophe (CAT) exposures, particularly to British Columbia earthquake and US severe convective storms.”

For IMEA, so India, the Middle East, and Africa, property rates were up 6% and Marsh said, “Rate increases were influenced by higher reinsurance and capital costs in catastrophe (CAT) exposed portfolios, capacity demand, and continued loss activity, especially in Saudi Arabia, India, and Africa,” adding “Insurers scrutinized terms and conditions including CAT aggregates and deductibles.”

It’s clear that insurers aversion to catastrophe risks and desire to be compensated on a risk-adequate basis, continues to be the main driver for property risks worldwide.

With inflation as well, it means values are rising alongside insurers trying to catch their rates up to exposure and loss activity, while reinsurance costs are also causing increases as well.

Property rates are likely to rise further in 2024 and while inflation may slow, it will still be driving exposure and values higher overall.

So, in a reinsurance market that is stabilising, these dynamics are likely to prove a strong motivator for property catastrophe reinsurance capital providers to sustain rates at their now higher levels.

It’s also interesting Marsh notes competition as helping to moderate the rate environment, at least to a degree.

Part of this could also be the improving reinsurance situation and the fact major carriers have been buying more protection, all of which might make capacity more available, albeit at rates that cover loss costs, expenses and costs-of-capital.

But if cat exposed primary property insurance rates keep rising, property catastrophe reinsurance capital providers are likely to seek further increases as well.