Is There a “New Normal” for P/C Insurers and Reinsurers?
One of the greatest challenges facing an insurer is identifying an inflection point, when the fundamentals of the risk environment have changed. Insurers can miss the signs and fail to adjust quickly enough, or mistake randomness for a ground shift and overreact. Even trickier is the fact that it will not be known immediately whether the response was appropriate. Only in the fullness of time can one get a better read on the trends and what is driving them.
Loss volatility has been a significant factor over the past decade. This is especially true for Commercial Auto, as well as for fire and Cat risks in the Property lines. That should lead insurers to ask: Is this a new normal? Are these losses the result of random unrelated circumstances, or are they reflective of a newly established status quo?
The hurricanes of 2017 and 2018 have set records, several qualifying for the top five in such categories as wind intensity at landfall, inland precipitation rate, costliest insurance NatCat year and, looking abroad, costliest natural catastrophe on record. Meanwhile, California wildfires kept up their tragically impressive pace in 2017 and 2018 for size and cost, capping a period of escalating destruction and loss. The big question is, What is the return period for this type of fire?
Liability trends, while less obvious, are no less disconcerting. Commercial Auto loss trends have been recognized and (re)addressed for almost five years, but pockets of greater volatility in General Liability are now becoming apparent, correlated to risk location and size. From our broad perspective of the Umbrella market, we see an uptick in large losses that are breaching Commercial and Personal Umbrella attachment points. The loss drivers interact and build on each other – litigation funding, traumatic brain injuries, escalating trial verdicts, more sophisticated plaintiff attorneys, social and medical inflation, repeal of statutes of limitations, opioids – all working together in pushing up insurance payments for the foreseeable future.
Quantifying these frequency and severity trends is easier said than done. We are pleased to work with many of our clients on ways to leverage various sources and data they have, and these efforts will be continuing. But in the end, often historical data points cannot tell us if a different future awaits. We need to be in a constant state of readiness to review historical information, interpret new information as it is received, and dig deeper into the anecdotal stories, striving to connect the dots and form a sensible strategy before intolerable loss ratios tell us what we missed.
It is too soon to say whether we are in a “new normal,” but it is not too soon to say that the latest trends call for insurer caution. Can you measure what the impact is to your portfolio of risks? Can you handle the volatility from extreme events whether Property or long-term Casualty trends? Are you ahead of your peer group in tackling this motion in the market, or are you along for the ride as the market evolves? Are you identifying opportunities as capital retreats when the bruises aren’t healing quickly enough?
No one has all the answers, but Gen Re has almost a century of experience asking the right questions and working directly with our clients to develop the right strategies. Our team around the world is here to work with you in evaluating and accepting risk to support your policyholders, so please feel free to reach out with any questions or to share your thoughts. Whatever the market trends, that is our “normal” objective, and we are proud to say there is nothing new about that.
“We’re seeing movement at an accelerating pace in loss trends that can be concerning, and something to keep your eye on for sure.” View Kara’s conversation with AM Best at NAMIC’s Annual Meeting.