Beazley’s Hartigan on colliding forces that drove property re/insurance crunch

It’s the time of year for op-ed and outlook articles and Patrick Hartigan, Group Head of Treaty business at insurance and reinsurance specialist Beazley has given a clear explanation for some of the issues that have led to the hardening of the property market.

First, it’s clear Beazley is bullish and believes there is a fantastic opportunity opening up for 2023, to grow more sustainably back into property insurance and reinsurance at the new, much higher, pricing we’re seeing and also stricter terms.

“Beazley expects a turnaround in the fortunes of the property insurance and reinsurance markets throughout 2023. The 1/1 renewal has been the first staging post in this transformation, with late orders, tightening terms and conditions and sharp increases in rates,” Hartigan explained.

But he goes on to explain what has led to this “dramatic change in direction,” believing that a colliding of significant forces in the industry has now led to the crunch-point we are seeing at the reinsurance renewals this year.

Those significant forces seem to be on the one hand capital and risk appetites, with excess of the first driving a dearth of discipline on the latter, resulting in the scenario where rates were driven down at a time when risk was actually on the rise.

Hartigan explains, “This dramatic change of direction comes after more than five years of significant pressure of excess capital driving down rates and eroding terms and conditions.

“During this time, property catastrophe underwriting has become more commoditised with ubiquitous but fallible catastrophe models driving less differentiation and learning.

“At the same time, as abundant capacity was reducing rates, the growing impact of climate change on physical assets was making the property market fundamentally more risky.”

He continued to say that, “These two forces of falling rates and increasing risk have seen Beazley actively retreat over the last five years. As a specialist underwriter, we offer most value when market dynamics are complex, volatile, and where significant growth potential exists. These were not the conditions of the property market over the previous half decade. Instead, during that time we increased investment in climate expertise, enhanced modelling tools and took steps to embed the learnings into our underwriting processes and improve our risk selection.

“As conditions now change, we are ready to step up and support insurers and commercial buyers find cover as many peers pull back in the face of investor disillusionment because of the poor returns of recent years. We believe that this ongoing hard market environment, will see rates increase by approximately 15% for direct business and by around 50% for reinsurance in 2023.”

Beazley’s Hartigan believes that these conditions are not only going to result in a short-term hardening of rates, expecting that the industry has perhaps changed its baseline return expectations (or finally realised the need to deliver on its return promises).

Hartigan explained, “We also believe these conditions are likely to persist. More insightful solutions and larger limits of cover are required to address the lack of sustained supply of investors. This will be further exacerbated as the demand continues to grow, driven by inflation pushing up property and replacement values.

“Our recent successful capital-raising exercise demonstrates our confidence in the sustainability of the change in direction of property rates. and in our ability to effectively underwrite the class of business given the groundwork we have done to understand the challenges of climate change.

“The keys to making the most of the opportunities and supporting our clients and broker partners will be the people and expertise that are at the heart of our business. With these aligned, we expect to offer leadership to the market and grow our presence in property throughout 2023.”