February 2, 2021 by Greg Meckbach
Despite consecutive quarters of double-digit increases in specialty lines, commercial insurers are likely to continue raising your clients’ premiums even further in the coming years, a Bermuda insurance CEO warns.
“While the pricing momentum we are seeing in both insurance and reinsurance is encouraging, we still believe a multi-year correction is needed,” said Albert Benchimol, CEO of Axis Capital Holdings Ltd., during an earnings call Jan. 27.
During the three months ending Dec. 31, the average rate increase in Axis Capital’s Canadian specialty business was 34%, reported Benchimol.
Even higher, at 40%, was the average rate increase for directors’ and officers’ liability for public companies. That figure refers to Axis Capital’s North American business.
Industry-wide, there has been an increase in D&O claims costs, especially for publicly-traded firms, insurance executives have told Canadian Underwriter.
For Axis, the average rate increase across its global commercial primary insurance business was 18% in 2020 Q4, Benchimol said during the conference call, in which he discussed the financial results for 2020. Axis writes both commercial primary and reinsurance.
Company-wide, Axis reported a combined ratio of 109.6% in 2020, up seven points from 102.6% in 2019. Catastrophe and weather-related losses of US$774 million (before tax and net of reinsurance and reinstatement premiums) accounted for 17.7 points of the 2020 combined ratio. That included US$360 million in losses attributable to the COVID-19 pandemic. Much of the COVID provision was for losses incurred but not yet reported.
In reinsurance, Axis reported Jan. 26 its gross written premiums dropped nearly 13% from $3.2 billion in 2019 to $2.8 billion in 2020. This was due in large part to non-renewals and decreased line sizes associated with the repositioning of Axis Capital’s reinsurance portfolio. In commercial primary insurance, Axis Capital reported an increase in gross written premiums from US$3.7 billion in 2019 to US$4 billion in 2020, due in large part to rate increases.
Commenting on reinsurance rates, Benmichol said evidence exists that climate change is having an impact on many lines, including property.
“The world is changing and I think it is very difficult to project with any accuracy the impact of climate change on frequency and severity,” he said Jan. 27. That particular comment was in the context of Axis Capital’s effort to reduce the proportion of its reinsurance book that is exposed to property catastrophes (as opposed to reinsurance for casualty, aviation and marine).
Climate change came up Jan. 25 during a separate webinar hosted by Canadian Underwriter.
One audience member asked panelists whether climate has a far greater effect on creating a hard market than the COVID-19 pandemic.
“I don’t know if I agree with that,” Aviva Canada CEO Jason Storah replied during the Canadian Underwriter webinar, titled Canada’s P&C industry in a post-COVID world.
“Climate change has been around since way before [the pandemic]. It’s not what forced the hard market,” said Storah. “I think that was years of under-pricing in a soft market and all of a sudden it caught up with the industry.”
Also on the webinar was Carol Jardine, president of Canadian operations at Wawanesa Mutual Insurance.
“Where climate change is really hitting insurers is with our reinsurance purchase,” she said.
If primary insurers have to pay more for reinsurance, they will likely pass some of that cost on to their clients, said Marcos Alvarez, Toronto-based senior vice president and head of insurance at DBRS Morningstar, in a separate interview this past September.
“If we get a couple of large hurricanes, that is going to have an impact on reinsurance pricing,” Willis Re Canada CEO Geoffrey Lubert told Canadian Underwriter the week before Sally made landfall.
“Overall, the 2020 Atlantic hurricane season was extremely active, with well above normal activity for the season,” the U.S. National Hurricane Centre reports.
In 2020, there were 30 named North Atlantic storms, compared to the long-term average of 12 per year.
The 2020 North Atlantic hurricane season hit Axis Capital hard.
For 2020, Axis recorded US$414 million in catastrophe and weather-related losses, due in large part to Hurricanes Laura, Sally, Zeta and Delta, the company said Jan. 27.
Hurricane Laura, which made landfall Aug. 27, 2020 near the Louisiana-Texas border, cost the industry up to US$8 billion, AIR reported earlier. Sally made landfall as a Category 2 hurricane Sept. 16 near Gulf Shores, Ala. Delta also made landfall as a Category 2 hurricane Oct. 9 near Creole, La. Three weeks later, Hurricane Zeta made landfall near Cocodrie, La., about 130 kilometres south of New Orleans.
Feature image via iStock.com/wwing
Even before Covid-19, commercial premiums were on the up escalator and the trend, despite the disease, suggests it’s an infinity escalator. As proof, a client’s recent premium went up almost $1,000 even though his business is down 40% for the past year. Covid had nothing to do with it.
There is a dichotomy between what RIBO’s conduct guide informs the broker to do at renewal time in securing other quotations (add new business to that) and the reception from markets, some of which believe the broker is simply following protocol without any intention of eventually placing the business – a matter of “their waste of time.” That happened recently to me. It was on new business and I promptly withdrew the submission. 69 years of developing a ‘religion’ (“one’s devotion to”) for the attention and detail in honoring the client’s trust and industry expectations allowed me no alternative.
The markets’ current, shrunken scope of writable business gives the average-size broker some deep introspection in how to deal with commercial renewals. Those that have not been put on probation or reduced in risk size, are best to be left alone. And while a declination from an insurer is another stat you don’t need against your record, do your best to work with clients on loss control and the removal of extraneous coverage and/or the application of increased protection, geared to altered exposures.