The most challenging January reinsurance renewals in nearly two decades saw global property catastrophe rate increases of 25% to 60% with loss-affected clients facing even higher prices, according to John Doyle, president and chief executive officer of Marsh McLennan Cos.
“The property cat reinsurance market was stressed with pricing and attachment points increasing significantly, reflecting several years of higher-than-expected cat losses, macroeconomic factors, and supply and demand imbalances,” he said during an analysts’ call to discuss fourth quarter and full-year earnings.
“In the U.S., property-cat reinsurance rate increases were the highest in 17 years, generally in a range of 40% to 60%,” said Doyle who became MMC’s president and CEO on Jan. 1 (after the retirement of Daniel Glaser).
Doyle said that ceded premiums were tempered by higher retentions in most cases, or catastrophe programs that attached at higher levels.
“Attachment points were up substantially for many of our clients, not only in the United States, but in all geographies with the Jan. 1 cat renewals, so our clients were forced to take more risk, more volatility on their balance sheets,” said Dean Klisura, president and CEO of Guy Carpenter, Marsh McLennan’s reinsurance division.
January Renewals See Hardest Property Catastrophe Reinsurance Rates in Generation
While many in the industry had expected that inflation would drive demand for additional limit, that did not materialize during the renewals, Klisura noted. “Clients mostly bought the same amount of cat limit they bought last year,” he said, explaining that, for many clients, it was cost-prohibitive, given the rate increases in property cat and very challenging terms and conditions.
P/C Insurance Rates
Meanwhile, average commercial property/casualty insurance pricing continues to rise across many lines and geographies, Doyle said. “While the pace of price increases continued to moderate after rising for 21 consecutive quarters, the tight reinsurance market could have knock-on effects, particularly for property-insurance rates.”
Addressing trends in the insurance market, Martin South, president and CEO of Marsh said: “We’re in the 21st quarter of rate increases of about 4%, which is tough for our clients, and, of course, that is going to impact on their behaviors. Casualty is leveling off at [3%] and property accelerated slightly to 7% in the last quarter.”
He predicted that trend will continue through Q1 of next year as insurers absorb the cost of high cat losses and reinsurance costs.
Overall average directors and officers rates were down about 6%, which South attributed to less activity from special purpose acquisition companies (SPACs), which tended to be higher rated, and new entrants into the D&O insurance marketplace. “Globally about 20 new carriers came into the market, deployed capital, which enabled some of our clients to increase their limits and take opportunities that they saw in that market.”
Moving on to the cyber market, South said rates continued to accelerate with rate increases of 28%, although that is a deceleration from the previous quarter which had seen increases of 53% .
Q4 and 2022 Results
Marsh McLennan’s Q4 operating income was $680 million compared with $986 million in the prior year period. Consolidated revenue was $5.0 billion, a decrease of 2% compared with the fourth quarter of 2021, or an increase of 7% on an underlying basis.
For the full year, operating income was $4.3 billion, and adjusted operating income rose 11% to $4.8 billion. Net income attributable to the company was $3.0 billion. Revenue for the year was $20.7 billion, an increase of 5% compared with 2021, or 9% on an underlying basis.
Risk and Insurance Services
Marsh McLennan’s Risk and Insurance Services (RIS) segment (Marsh and Guy Carpenter) reported Q4 operating income of $472 million, compared to $667 million in the same period of 2021, while adjusted operating income increased 23% to $685 million from $557 million in the same period in 2021.
Q4 revenue for the RIS segment was $2.9 billion, a decrease of 3%, said Mark McGivney, Marsh McLennan’s chief financial officer. “On an underlying basis, revenue in RIS increased 8%, the strong result reflecting the momentum in our business and our resilience in the face of macro headwinds and economic uncertainty.”
For the full year, RIS’s operating income was $3.1 billion, while adjusted operating income rose 15% to $3.5 billion. Full year RIS revenue was $12.6 billion, an increase of 5%, or 9% on an underlying basis.
Breaking down the results of the two RIS units, McGivney said Marsh revenue in the quarter decreased 6% to $2.7 billion, but was up 6% on an underlying basis. For the full year, revenue at Marsh was $10.5 billion, an increase of 3%, or 8% on an underlying basis.
Guy Carpenter’s fourth quarter revenue was $171 million, up 5% on an underlying basis, said McGivney. For the full year, Carpenter’s revenue was $2 billion, an increase of 8% over a year ago, or 9% on an underlying basis, he added.
“Based on our current outlook, we expect Guy Carpenter’s growth in 2023 to benefit from a tightening reinsurance market,” McGivney noted.
- No Class of 2023: Why Capital Is Sitting on the Reinsurance Sidelines
- Jan. 1 Renewals: ‘They Got Done’; Carrier Overreliance on Reinsurers Corrected
Topics Trends Reinsurance
Was this article valuable?
Here are more articles you may enjoy.