While the total impact of Hurricane Ian won’t be realized for some time, the effect on an “already stressed property market will be significant,” said John Q. Doyle, group president and COO of Marsh McLennan.
“At mid-year reinsurance renewals, the property market was already exhibiting strains,” Doyle said during a conference call to discuss third-quart earnings. “Following Ian, the property [catastrophe] market is likely to tighten even further and perhaps see a significant supply imbalance.”
With catastrophe losses eclipsing modeled estimates over the last several years, Doyle said the market is underpriced. Plus, inflation has created challenges.
“We were headed to meaningful rate change prior to Ian of 20%, 25% – plus a range to cover inflation and against the elevated weather-related events,” Doyle said. “Now, it’s likely to be higher than that.”
Doyle, in line to become Marsh McLennan’s next president and CEO once Daniel S. Glaser retires at the end of the year, said the firm “delivered strong growth despite a macro backdrop that is become more uncertain” as clients navigate economic, geopolitical, and risk landscapes.
Third quarter consolidated net income attributable to Marsh McLennan increased to $546 million compared with $537 million during the same period in 2021.Net income for the first nine months totaled about $2.6 billion, up from about $2.3 billion in 2021.
Revenue in Marsh McLennan’s risk and insurance services segment (Marsh and Guy Carpenter) was $2.8 billion for Q3, an increase of about 6%, with Marsh’s revenue up 5% to about $2.5 billion and Guy Carpenter revenue up 4% to $328 million.
Analysts during the earnings call expectedly paid immediate attention to Ian. Asked if a hard reinsurance market would benefit Guy Carpenter in 2023, Dean Klisura, president and CEO, said demand is expected to remain “very strong,” including for property cat, and although Ian’s impact “will certainly create challenging market conditions at January 1 in the property cat space,” it could be a “tailwind for Guy Carpenter.”
Klisura pointed out that 2022 will be the third year in a row of $100 billion catastrophe losses in the market, which will likely lead to more than just rate increases for U.S. catastrophe-exposed risks. He said increased retentions, changes in coverage terms, and reduced capacity from some providers are to be expected as well as an impact to the retrocessional market.
“Some are discussing 25% of retrocessional capital being trapped by Ian and the market, and not replenished for January 1,” he added. “We’re investigating new capacity in the marketplace.”
Martin South, president and CEO of Marsh, added: “No question, there’s going to be a strain in the property market, particularly for clients that have high cat exposures.”
“We would have thought by now, at this point in the cycle, after such consistent growth in property, that we would have started to see some easing off,” South said. “The reverse is going to be true, sadly, for our clients.”
On Cyber
South said clients got Q3 rate increases of 53% in cyber – down from rate increases seen during Q2 but “still very strong.”
“Some of the activity we’ve seen is slowing down a little bit but it’s a healthy market,” South said.
Doyle said, “We’ve had a lot of rate on rate. It’s been a difficult market.”
Carriers have responded to ransomware trends with higher retentions and lower limits but the cyber market is “not near maturity,” he added.
“We’re still working to bring more capital to the market – better solutions to the marketplace. But the cyber insurance market should be an area of growth for us for some time as we help our clients navigate the risks of a digital economy,” Doyle added.
Topics Pricing Trends Property
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Chad is National News Editor at Insurance Journal. He has been covering the insurance industry since 2007, reporting on trends and coverage in most lines of insurance as well as natural catastrophes, modeling, regulation, legislation, and litigation. Chad can be reached at [email protected]
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