2024 saw a marked shift in market conditions as insurer focus shifted to sustainable growth. With a few notable exceptions, buyer friendly conditions continued in Q4.

Opportunities Continue in a Dynamic Risk Environment

2024 was a year of insurance market transition following a prolonged period of widespread price increases and underwriting discipline spanning wide swathes of the market, the past year saw a pronounced shift toward buyer-friendly conditions, with insurers growing steadily more confident and focused on targeted growth.

Despite another active year for natural catastrophe losses, conditions in the Property market continued to ease in the final quarter of 2024, with increasing capacity and underwriting flexibility for well-performing, preferred risk types. The softening of the Cyber insurance market, already well underway at the start of 2024, accelerated during the year. The well-capitalized Directors & Officers market saw buyer-friendly conditions prevail, although price reductions have decelerated and, in some cases, leveled off in recent quarters as some insurers began to focus on sustained underwriting profitability.

Fueled by higher treaty attachments that kept most natural catastrophe losses from impacting reinsurers, abundant capacity, and competition, reinsurance market renewals for the January 1, 2025, season were broadly favorable. This, combined with insurer growth ambitions, furthers our optimism that moderate-to-favorable conditions will continue in 2025 across most categories of the market. While the outlook is broadly positive, it is worth noting a trend that we think is here to stay – the insurance market no longer moves only in broad cycles, but rather moves increasingly in micro cycles that are more product, industry and geography-specific. These micro markets are at different stages of their respective cycles. Buyers in Japan, for example, face challenging conditions at the start of 2025 as insurers continue to take measures to improve underwriting profitability, while the compounding effect of rate reductions and an evolving risk landscape for Cyber and Directors and Officers points to potential volatility for these two lines in the years ahead. Indeed, today’s easing market conditions can swiftly change a micro market as loss data and other external factors are more quickly available and absorbed into the underwriting ecosphere. As we begin 2025, we are carefully watching for further developments related to natural catastrophe exposed Property risks – particularly in the immediate aftermath of the California wildfires which are estimated, at the time of writing, to have damaged or destroyed more than 12,000 residential and commercial structures – as well as in the U.S. Casualty market, including:

Increasing Volatility of Climate-Related Losses

With the cost of Natural Catastrophe insured losses in 2024 exceeding $100 billion for the fifth consecutive year, extreme weather events remain a major challenge for the insurance industry, insureds and governments, who are increasingly footing the bill for such events. While losses from hurricanes Helene and Milton appear to be within industry tolerances, these events, together with the early January California wildfires, further underscore the unpredictability and volatility of climate-related losses, which may affect insurer growth appetite in 2025. The potential for this shift became more pronounced in the final quarter of 2024 as some loss-affected markets showed conservatism on capacity, pricing, and coverage for Natural Catastrophe risks.

Adverse Litigation Trends / Social Inflation

While parts of the Casualty market are beginning to soften, “nuclear verdicts”, litigation funding and aggressive plaintiff bar tactics continue to drive adverse loss trends for risks with U.S. exposure. With no remedy to social inflation in sight, difficult market conditions for U.S. Casualty – especially in the excess layers – look almost certain to continue into 2025. Casualty insurers are getting more stringent regarding coverage for “forever chemicals” (per-and polyfluoroalkyl substances), while evolving privacy regulations and artificial intelligence are also risk areas on insurers’ radars.

In addition to climate unpredictability and adverse litigation trends, insureds and insurers alike must contend with geopolitical and economic headwinds, ever-evolving cyber threats, the impact of artificial intelligence, and growing corporate responsibility risks. While insurers face an increasingly competitive market, we think these many uncertainties, declining interest rates and continued loss volatility will prevent the complete abandonment of the underwriting discipline that began about 7-8 years ago. We expect continuing focus on long term pricing adequacy as insurers make pricing decisions in 2025.

At the same time, risk managers have entered an unprecedented period of choice which will continue to expand with the continuing sophistication of analytics driving more quantitative decision-making, and the increasing interest of new sources of capital in the risk space. Alternative risk solutions including captives, parametric products, and facilities have continued to gain prevalence in the risk manager’s toolkit. And traditional insurance solutions are evolving as well as organizations seek more customized solutions and re-evaluate risk retention and risk transfer tradeoffs. Today’s dynamic environment offers opportunities for clients to deepen their key relationships with insurers while securing risk transfer and alternative solutions that better meet their needs. As most can expect easing market conditions, now is the time to consider strategic investments in long-term risk management and risk financing strategies using data and insights to shape and sharpen your decision-making.

Joe Peiser, Chief Executive Officer, Commercial Risk Solutions, said:

The insurance market no longer moves only in broad cycles, but rather moves increasingly in micro cycles that are more product, industry and geography-specific.

This article was originally published by Aon.

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