Gallagher’s June Insurance Market Report: Key Highlights and Implications for Buyers

How does the 2023 insurance market look so far? It depends on where you stand.

Property is facing its most challenging market in 20 years. But D&O rates are down after spiking in 2020. Cyber is evolving to limit exposure. Workers’ compensation is flat.

Gallagher’s June Insurance Market Report spotlights current trends and conditions impacting the markets midway through year and predicts what the rest of 2023 has in store.

Property

Buyers are experiencing an extremely challenging renewal phase, driven by the hard reinsurance market and elevated recent catastrophe claims. Overall, rates online increased by an average of 14% in the first quarter of 2023 and by 36% for the top quartile.

In addition to traditional catastrophe perils, losses from severe convective storms, hail, and tornadoes are driving double-digit increases in 2023.

The hard reinsurance market continues to be a significant driver behind capacity constraints. Some carriers are holding back capacity for new business at opportunistic pricing, with rates for CAT-exposed portfolios seeing average increases of 30% during Q1 2023. The lack of significant new capacity is partly caused by low confidence in the market’s ability to price extreme volatile risk. Global reinsurance capital declined by 12% during 2022 to $638 billion, according to Gallagher Re. Those dislocations were even more pronounced at the market’s April 1 renewals.

Inflation, valuation adjustments and rising loss costs will likely drive a hard property market through the rest of 2023 and into 2024.

Casualty

Social inflation and nuclear verdicts will continue to challenge pricing trends. Still, a more rational casualty market is emerging with moderate rate increases across casualty lines, particularly within auto, general liability and lead umbrella business.

General inflation is driving up the overall level of exposure and cost of claims, ultimately resulting in higher premiums and creating additional pressure for insureds. Those in more challenging classes of business and distressed industry sectors may be considering selective self-insurance strategies via captives or other risk retention structures. There is more choice of markets at renewal, and capacity is even returning to mid-excess layers.

Overall, the market is seeing steady price increases ranging from 5% to 7%, primarily in general liability, auto, umbrella, and excess coverage. Workers’ compensation remains the outlier, with insureds typically seeing flat-rate renewals.

Cyber

The cyber threat landscape continues to evolve. Competition has returned to the market driven by improved loss ratios during 2022 and more attractive pricing levels.

Ransomware activity was up during Q1 2023 after slowing down in 2022. And there is a new focus on risks associated with AI, with AI tools allowing cybercriminals to develop more convincing scams. Carriers have introduced tighter policy language to limit their exposure to potential systemic risks, including cyber warfare.

Capacity is coming back through incumbents, MGAs and start-ups, resulting in improved limits and a flattening of rate increases. In some cases, clients with superior security controls have secured a discount on their premium with better terms and conditions.

D&O

Attracted by a more favorable pricing environment and a respite from securities claims, there has been an influx of capacity in the D&O space – 32 new entrants over the past 12 months.

The new capacity has driven incumbent markets to decrease current rates, primarily due to a lack of growth and a decrease in new business opportunities given capital market conditions. Rates have come down most dramatically for public companies, with a median rate reduction of 26% during the first quarter of 2023. For private companies, renewal rates are flat or with single-digit increases. Legacy and less risky public companies may see pricing closer to 2019 levels at upcoming renewals.

However, D&O is still volatile, with claims severity higher for public companies. After a lull during the pandemic, there is anticipation that M&A activity will pick up again and, with it, securities actions, including those involving SPAC IPOs and de-SPAC transactions. The market saw 13 mega settlements (those in excess of $100 million) in 2022, compared to four in 2021.

Topics Trends Market A.J. Gallagher