As of January 1, 2024, the reinsurance market was showing signs of stabilization after a period marked by challenging treaty renewals. Amid this shift towards normalcy, the property insurance sector is expected to maintain a positive rate environment through the first half of the year, new analysis from Lockton has revealed.
Insurers are expected to keep a close eye on loss trends, applying rigorous underwriting scrutiny. The quota share market is also experiencing growth in capacity, with ceding commissions stabilizing or even increasing. However, Lockton noted that the market for higher-risk coverage continues to face capacity constraints, largely due to the specialized nature of the coverage required.
The report noted that reinsurers have also reported considerable profits over the past year, leading to a comfort level with the pricing and attachment points for catastrophe coverage by the end of 2023. This comfort contributed to the rate stabilization observed at the start of the year.
While the reinsurance market’s improving conditions have somewhat influenced the retail property insurance market, leading to a slowdown in rate increases, the majority of buyers are still experiencing rate hikes.
Those with significant catastrophe exposure, recent losses, or challenging occupancies, are facing particularly tough conditions in early 2024. Individual account characteristics, such as loss histories, will play a significant role in determining rates for insureds, with some experiencing rate reductions and others seeing increases.
Lockton also found it noteworthy that primary property insurers are currently retaining more risk than two years ago, which may lead to increased loss costs being passed on to retail insurance buyers. This trend is part of insurers’ broader strategy to adjust primary rates, albeit more slowly than in the previous year.
Concerns about catastrophe losses, especially from secondary perils like wildfires and convective storms, remain high among insurers. Despite a relatively mild Atlantic hurricane season, the United States experienced a record number of weather events causing economic losses of $1 billion or more in 2023, as reported by the National Centers for Environmental Information (NCEI).
That said, Lockton revealed that efforts to control inflation are making progress, with the Bureau of Labor Statistics’ Consumer Price Index indicating a slowdown in headline inflation to 3.1% year-over-year in January 2024. Core inflation remained steady at 3.9%, the lowest since May 2021. Additionally, the cost of construction materials, including lumber and wood products, has decreased in recent months, though prices remain significantly higher than pre-pandemic levels.
Insurance companies continue to monitor the impact of material and labor costs, along with ongoing supply chain disruptions, on property valuations. While valuation discussions may have decreased compared to a year ago, they are likely to remain a focal point in renewal negotiations for some policyholders.
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