Reinsurance renewals 'extremely challenging': Honan
Broker Honan has predicted even higher property premiums are in store after an “extremely challenging” January reinsurance renewal season.
Australian floods and US hurricanes last year, along with the ongoing war in Ukraine and economic pressures, weighed heavily during renewal negotiations.
January 1 marks the date for catastrophe reinsurance renewals – especially for US and European insurers – and prices agreed to during these talks are seen as an indication of what’s in store for Australian insurers, most of which renew their programs around June.
“This year, reinsurance renewal negotiations were considered extremely challenging, with a wide range of global events weighing heavily on the market,” Honan says in its quarterly update.
“Insurance companies will look to pass on the increases to policyholders by way of property insurance price rises for some homes, business buildings, and other property insurance and will closely scrutinise where they underwrite risks by restricting areas that are known to be impacted by storms and floods.”
Honan says it has seen past examples of insurers refusing to offer cover if their minimum pricing requirements were not met. Insurers may also may elect to decline offering certain covers such as flood, bushfire, or cyclone.
“With higher attachment points for property catastrophe reinsurance, insurance companies will closely monitor and avoid or limit writing business in known storm or flood-prone areas,” Honan says.
“We believe securing coverage will be one of the biggest factors impacting policyholder renewals this year.”
The Honan update also provided key takeaways on various business classes including financial lines.
Last year the overall financial lines premium pool increased 20% annually to $5 billion and returned to profitability for the first time in many years.
The reported combined operating ratios of leading insurers have improved consistently across the market and because of the new capacity selectively entering the market, risks are increasingly becoming divided into two tiers: those in profitable sectors where there is a clear appetite for insurers to grow again and others where there is limited to no competition on pricing and restricted capacity.
“Industry sectors that have low loss ratios and buyers that experienced the highest rate increases over the last few years were the first to see the benefits of a softening market during the last quarter,” Honan says.
Director’s and officers’ renewal pricing continue to transition away from increases for primary layers.
“We expect reductions in premiums to become prevalent for certain renewals throughout 2023 due to strong competition from both legacy insurers and new entrants,” Honan says.
“Insurers are typically comfortable with current capacity and limit attachment points, and they are more open to removing coverage restrictions applied during the hard market.”
For the professional indemnity (PI) line, Honan says it witnessed a two-tiered market across a significant portion of the PI landscape.
There were in-appetite professions targeted for insurer growth experiencing flat or decreased pricing with plenty of competition from Australian PI insurers.
In relation to cyber, premiums rose significantly last year and Honan expects clients to focus their attention on cyber security practices, more than in previous years.
