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Insurance sector wobbles on the sea of economic uncertainty

For the insurance sector, it seems that the only thing certain is uncertainty.

Revved up US demand for used cars sends prices soaring
A shortage of computer chips has stalled auto manufacturing, driving a price increase for used vehicles - Copyright AFP/File Yuki IWAMURA
A shortage of computer chips has stalled auto manufacturing, driving a price increase for used vehicles - Copyright AFP/File Yuki IWAMURA

How can insurance professionals in the property, casualty and professional lines sectors best navigate economic uncertainty in terms of coverage needs, carriers, capacity and coverage? A market report from Amwins provides insights on market trends in the property, casualty and professional lines sectors and offers clues to some of these questions.

The trends suggest the industry is expected to be seeing more of a slowdown of the hard market conditions compared with what has materialized at the start of quarter 2 2022. While many carriers are reporting improved loss ratios and record earnings, counter-factors like tightening capacity and rate increases remain.

These detractor forces are due to a number of global factors:

  • Russia’s invasion of Ukraine is expected to generate meaningful losses for certain lines of business and the economic effects of sanctions are putting pressure on oil prices and further accelerating U.S. and global inflation.
  • The Federal reserve has started raising rates in an effort to slow inflation. While rising interest rates could contribute to market softening long term, the immediate impact is unrealized losses on the current fixed income investment portfolios which negatively impact surplus. 

This leads to some turbulence, and with property challenged classes are continuing to see increases into 2022 and 2023, and accounts with better risk characteristics are experiencing flat to moderate increases.

The report suggests that the market is bifurcating between what the standard markets deem adequate rate for exposure and what the E&S market will tolerate. The theme of natural catastrophe losses impacting the property market remain consistent.

This variation is unsurprising given that 2021 proved to be the second costliest year for the insurance industry after 2017, with insured loss estimates ranging from $100 billion to $145 billion. One of the reasons for this was due to storm damaged.

The concern with climate impact has led many carriers to de-risk their portfolio by limiting their exposure to high-risk perils and locations, including Florida, wildfire-prone areas and coastal property.

With a different area, the report finds that the overall casualty market remains strong with primary general liability remaining flat in most areas on risks with favorable loss histories. This suggests carriers remain comfortable with the rate environment, attachment points and deployed capacity on individual accounts.

With cybersecurity, despite three years of steady cyber insurance rate increases, carriers have not seen the improvement in profitability to begin to offer decreases, and in fact, we expect to see a continuing hard market in that space.

Written By

Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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