MARKET OVERVIEW
We continue to see a strong flow of business for property insurance into the excess and surplus lines (E&S) channel. Following rate stabilization and with no mega-catastrophe events in 2023, property underwriters’ appetite is strong, with recent rates offered below their peak as additional capacity enters the market. Underwriters carefully monitor their exposure accumulations, with concern over potential catastrophe events and in light of their higher net retentions. Secondary perils, including severe convective storms, continue to be strictly underwritten.
The excess and surplus lines arena has continued its upward trend through midyear 2024, according to an August report by WSIA (wsia.org) from the assembled data of the U.S. Surplus Lines Service and Stamping Offices. “Surplus lines premium reached $39.5 billion from the 3.2 million items filed so far in 2024. These figures reflect a 10.1% increase in premium and a 10.8% rise in items compared to the same period in 2023. This follows 2023’s strong results with premium of $35.9 billion representing growth of 15.9% as reported in the 2023 Midyear Report.” This reporting is from the 15 states with Surplus Lines Stamping Offices. Property policy count is up 13.6% and property premium is up 14.7%.
REINSURANCE
July 2024 renewals showed the property reinsurance market continuing to move in a positive direction for most carriers, with overall average rate changes flat to down mid-to-high single-digits for the sector. Risk adjusted rate changes, while positive in most areas of the market, have abated slightly versus the first two quarters of the year. Additional capacity has entered the reinsurance market in the latter months of H1 (first half of 2024), mainly via increases in third-party capital investment, ILS (insurance-linked securities) funds and other collateralized products, and from traditional markets redeploying capacity in sectors where they previously took a more cautious view.
AM Best stated in their August 2024 Market Segment Report that reinsurers are focusing more on capital protection than stabilizing earnings.
Several quarters of compounding rate changes, as well as greater diligence on the part of the primary companies to ensure proper insured valuation, have prompted greater optimism that reinsurers can begin to return healthy margins for their investors. However, significant headwinds remain as severe convective storm activity across the greater Midwest continues to trend higher than average adding upward market pressure as companies calibrate their underwriting. In addition, the nation’s leading long-term meteorological forecasters appear to unanimously believe that the U.S. is due for a very active hurricane season. Finally, inflation has not appeared to ease as much as originally anticipated, potentially driving replacement costs trends up further than expected. Continued diligence on underwriters’ view of ITV (insurance to value) will be critically important going forward.
Given this uncertainty on the loss / claim front, many expect the third quarter to be a wait-and-see period with little change in market dynamics. Nevertheless, on June 9th, 2024, AM Best revised its sector outlook for the global reinsurance industry from “stable” to “positive” for the first time since December 2018 due to increased underwriting discipline, such as underwriters refocusing on technical profitability and tighter contract wording.
The August 2024 Best’s Market Segment Report shows reinsurance capital growth for the third straight year. Traditional reinsurance capital is expected to rise to $515B this year plus an additional $105B-$110B of third-party capital, making the total industry capital exceed $620B (see Figure 1). The rating agency said, “Renewals in 2024 have been smoother than in 2023, attributable more to better management of cedants’ expectations than to reduced demand.”
CATASTROPHE EVENTS 2024
In 2023, a record twenty-eight confirmed weather / climate disaster events with losses exceeding $1 billion each affected the United States. As of early August 2024, there have been nineteen events, including severe storm, tropical cyclone, wildfire and winter storm. See Figure 2.
SEVERE CONVECTIVE STORM: According to Swiss Re Institute estimates, H1 global insured losses from natural catastrophes are 62% above the ten-year average, primarily from U.S. severe thunderstorms, which accounted for 70% of global insured losses. The first half of 2024 is the second costliest on record, with $42B, 87% higher than the ten-year average. As urban areas experience growing populations and higher property values, the increased vulnerability to hail damage is making multi-billion-dollar loss events from severe convective storms.
WILDFIRE: According to the National Interagency Fire Center, as of September 3, 2024, there are large wildfires active in nine states. While the number of fires from the same time period over the last five years is at its lowest, the number of acres burned is one of the highest on record. See Figure 3.
The largest single active fire this year is the Park Fire in California, which as of September 3, 2024 is 98% percent contained and affected 429,603 acres. The human-caused fire is currently the fourth largest fire in California’s history and involved Butte, Tehama, Plumas and Shasta counties.
HURRICANE SEASON: The National Oceanic and Atmospheric Administration (NOAA) advised on August 8, 2024 that due to near-record sea surface temperatures and the possibility of La Nina, the Atlantic hurricane season is likely to remain highly active.
August saw two hurricanes, with Debby making landfall in Big Bend region of Florida as Cat 1, then making landfall as Tropical Storm in South Carolina. Hurricane Ernesto moved over Bermuda as Cat 1. NOAA National Hurricane Center’s September 1 Monthly Hurricane Summary stated, “In terms of Accumulated Cyclone Energy (ACE), which measures the strength and duration of tropical storms and hurricanes, activity in the basin so far in 2024 is about 50 percent above the long-term (1991-2020) mean.” See Figure 4.
THE RT SPECIALTY PROPERTY COMMITMENT
“The excess and surplus lines (E&S) market is consistently growing each year and adapts quickly as the market changes. RT Specialty monitors these changes and utilizes our key resources, talent and technology to capitalize on competitive solutions for our retail trading partners and their clients. Focusing on creativity, customization and innovation, our commitment to excellence demands we remain diligent in navigating current challenges as well as those in the future,” says Brenda (Ballard) Austenfeld, CEO & President of RT Specialty’s National Property Practice.
RT Property is a part of RT Specialty. RT Specialty is a division of RSG Specialty, LLC, a Delaware limited liability company based in Illinois. RSG Specialty, LLC, is a subsidiary of Ryan Specialty, LLC. RT Specialty provides wholesale insurance brokerage and other services to agents and brokers. As a wholesale broker, RT Specialty does not solicit insurance from the public. Some products may only be available in certain states, and some products may only be available from surplus lines insurers. In California: RSG Specialty Insurance Services, LLC (License #0G97516) ©2024 Ryan Specialty, LLC
This Article is provided for general information purposes only and represents RT Specialty’s opinion and observations on the current outlook of the US Property Insurance market and does not constitute professional advice. No warranties, promises, and/or representations of any kind, express or implied, are given as to the accuracy, completeness, or timeliness of the information provided in this Article. No user should act on the basis of any material contained herein without obtaining professional advice specific to their situation.