The Impact of Hurricane Ian and Reinsurance on the 2023 Property Marketplace

The Impact of Hurricane Ian and Reinsurance
on the 2023 Property Marketplace
As the year-end approaches, all eyes are on January 2023 property treaty renewals. Even before Hurricane Ian struck
at the end of September, reinsurance pricing and availability were a key concern for the sector. However, the hurricane’s
devastating impact has served to amplify those concerns and solidified the reinsurance market’s resolve in a rapidly
hardening property market. Inevitably, these concerns will impact insurers’ capabilities and capacities available to
insureds in 2023.

                                                                                                                     Hurricane Ian has only amplified
                                                                                                                     the likelihood of increased
                                                                                                                     pressure on rates, a greater focus
                                                                                                                     on adequate property values,
                                                                                                                     and limited carrier options for
                                                                                                                     reinsurance capacity.

While the reinsurance market is firming up across many lines, property is expected to face stronger headwinds than
others. The reinsurance market as a whole has improved in terms of underwriting results, but it is still catching up
when it comes to rates.1,4 Underwriting is being pushed to the same high level of discipline across the board, and as
reinsurers utilize different strategies to deploy capital, agents and brokers will find that a one-size-fits-all approach to
the marketplace will not generate the best results.3 January treaties are expected to be challenging, but market changes
are likely to be felt even more deeply as reinsurance capacity is deployed beyond the first of the year, significantly
impacting March and April renewals as well. Those with property accounts in areas typically less catastrophe-prone may
be tempted to think they’ll escape unscathed. While rate increases may be higher on catastrophe exposed risks, all risks
will be subject to valuation discussion, which is also likely to drive rate and premium increases because exposures are
growing and becoming more complex.

©2022 CRC Insurance Services, Inc., CRC of California Insurance Services, CA Lic No 0778135. No claim to any government works or material copyrighted by third parties. Nothing on this website constitutes an offer, inducement, or contract of
insurance. Financial strength and size ratings can change and should be reevaluated before coverage is bound. This material is intended for licensed insurance agency use only. This is not intended for business owner or insured use. If you are
not a licensed agent please disregard this communication.
                                                                                                                                                                                                                                   10182022-824

Reinsurers are facing pronounced geopolitical pressure and are navigating various aspects of inflation. Recent reinsurer
retrenchment from the catastrophe arena, balance sheet hits from investment write-downs, and the foreign exchange
market’s impact have converged with an inflation-driven spike in demand from insurers. While the reinsurance market
is global and wide in scope, several carriers exited or partially withdrew in 2021 and 2022. Even before Hurricane Ian
struck, it was highly anticipated that catastrophe and non-catastrophe property reinsurance would become more
difficult in 2023 due to the mismatch between supply and demand. Globally, there is likely a $25B - $50B shortfall in
capacity. At least $20B of new property catastrophe capacity is likely needed in the U.S., and rising inflation means most
cedants will strive to purchase at least 10% more in reinsurance limits just to hold steady.2,12
With the impact of 2022 inflation not previously priced into January 2022 renewals, 2023 pricing will have to make up
for the missed inflation and factor in forecasts for 2023. Some reinsurers have suggested rate increases of 15% percent
would be insufficient without adjusting for the risk and uncertainty around secondary perils that also must be reflected
in January 2023. Hurricane Ian’s catastrophic impacts will accelerate property catastrophe reinsurance rate momentum,
while also further disrupting the Florida insurance marketplace, likely driving rate increases up 20% or more.5,8 Several
sources have suggested rate increases of as much as 40% - 60% as a likely starting point for negotiations. However,
the magnitude of increases will depend on how cedants have managed Insurance to Value (ITV) concerns on their
underlying portfolios and how inflation was priced into expiring deals.11
Hurricane Ian damage estimates are putting losses at $47B - $60B, meaning the impact to insurance and reinsurance
markets is expected to be significant, maybe even unprecedented.1,9 It’s also anticipated that Florida’s difficult property
insurance marketplace will only get worse as there is likely a challenging few years of claims and loss amplification
ahead after Hurricane Ian, with ramifications for reinsurance. It may take years for the losses to be fully understood as
loss creep may be an issue that erodes, or traps, reinsurance capital over consecutive renewal cycles, as previously seen
with Hurricane Irma in Florida.8
Recently, the insurance marketplace has seen insurers emphasize valuation, and underwriters have taken a much harder
line on property values, using software to verify estimated property values and costs at every renewal.10 Until now,
that same level of concern had not seeped into the broader reinsurance market.3 That narrative has begun to shift as
reinsurers are now laser-focused on ITV. They are closely scrutinizing valuation adequacy as well as rate adequacy and
pushing cedants to better assess, manage, and price risk due to valuation concerns.10 If reinsurers feel property values
are underreported, they are grossing up carrier values and applying any other applicable rate changes in addition to the
increased charge for growing exposure. Absent a narrative around increased ITV year over year, insurers are now in a
position to push tighter terms around valuation: scheduled limits or margin clauses.

                                                             Hurricane Ian is estimated
                                                             to have caused more than
                                                             $60B in private insured
                                                             losses in Florida alone,
                                                             making it the second-
                                                             largest disaster loss
                                                             event on record.9

HOW AGENTS CAN HELP
The property marketplace is challenging as inflation is at a 40-year high, interest rates are nearing 7%, and construction
labor, as well as material costs, remain expensive, which will continue to impact ITVs. Agents can help their insureds
obtain the best possible results by developing a data-based narrative to support reported values. Providing the most
current valuation data yields better results in terms of premiums and the marketability of a placement. Insured property
values will need to be updated to meet the higher building costs of today. Those who fail to do so are likely to see
greater penalties on rate or increased premiums. Due to the pandemic and subsequent economic fallout, it’s likely
been three years or more since many insureds have completed a property appraisal. Proactively obtaining an updated
appraisal in advance of renewal can help support fair market negotiations.10 Underwriters are often more open to
considering submissions with the most up-to-date valuation data. More current values also enable carriers to properly
price coverage, ensuring that clients secure adequate coverage to rebuild or replace damaged property.1
Agents can also add value to their client relationships by ensuring that policyholders understand that premium and
rate are two separate aspects of their total coverage cost, and both are working against them in the 2023 marketplace.
Proactively explaining that the rate charged per unit of insurance is rising based on inflation and growing exposures and
the premium amount (rate times the number of units purchased) is going up based on higher ITVs, can help agents set
appropriate cost and coverage expectations with insureds.

    Key Factors Affecting
    Property Market:
       • Increased Reinsurance Demand
       • Reduced Reinsurance Supply
       • Inflation and Property Valuations

BOTTOM LINE
Hurricane Ian has only amplified the likelihood of increased pressure on rates, a greater focus on adequate property
values, and limited carrier options for reinsurance capacity. While the last 4 years of market conditions have been
about insurers attempting to return to profit by increasing rates, this market will be driven by the increased cost
and/or unavailability of reinsurance - similar to past traditional hard markets. Even at higher prices, the shortage of
additional catastrophe appetite needed to match demand means that getting renewals across the finish line will require
a significant effort.5 As 2023 renewals approach, both sides of the negotiation will face challenges. While demand may
be up – particularly in the U.S., reinsurers will be more cautious as underwriters skillfully address shifting inflation-driven
exposures and prudently deploy capacity.3,6 It will be vital that agents and brokers take a collaborative stance, engage in
proactive, thorough discussions around ITV, set appropriate expectations, and get out in front of renewals early to strike
an equitable deal. Timing, data transparency, and partnership with high-quality partners will be key to success in the
2023 marketplace.7
CRC Group has the scale, seasoned property specialists, tools, and extensive market access needed to provide diverse
insurance solutions that can make all the difference, including deductible restructuring, parametric covers, and
alternative program structures. Contact your local CRC Group producer today to learn how we can help your property
clients weather the quickly hardening market. ◆

CONTRIBUTORS
     Meghan Merris is a CRC Group Property Broker with more than 15 years of experience in insurance and reinsurance
     brokerage.

     Chris Carlson has more than 15 years of experience in Global Property Insurance and is the Director of CRC Group’s
     Property Practice.

END NOTES
1.   Hurricane Ian ‘Costliest’ Florida Storm in 30 Years with Up to $47B Expected Losses, Intelligent Insurer, September 30, 2022.
     https://www.intelligentinsurer.com/news/hurricane-ian-costliest-florida-storm-in-30-years-with-up-to-47bn-expected-losses-30551

2. The Search for the Missing $20BN, The Insurer, October 2, 2022.
   https://www.theinsurer.com/comment/the-search-for-the-missing-20bn/25391.article

3. Gallagher Re’s Kent: “An old-fashioned Rendez-Vous” with a Focus on Capacity and Rate, The Insurer, September 13, 2022.
   https://www.theinsurer.com/reinsurance-month/gallagher-res-kent-an-old-fashioned-rendez-vous-with-a-focus-on-capacity-and-
   rate/25070.article

4. Ariel Re Looking to Raise Capital to Support 2023 Growth Opportunities, The Insurer, September 13, 2022.
   https://www.theinsurer.com/reinsurance-month/ariel-re-looking-to-raise-capital-to-support-2023-growth-opportunities/25054.article

5. Brokers Tested as Inflation Fuels Demand for Higher Limits Despite CAT Caution, The Insurer, September 14, 2022.
   https://www.theinsurer.com/reinsurance-month/brokers-to-be-tested-in-q4-as-inflation-fuels-demand-for-higher-limits/25073.article

6. Andrade: Everest Re CAT Deployment Focuses on Key Trading Partners, The Insurer, October 2, 2022.
   https://www.theinsurer.com/news/andrade-everest-re-cat-deployment-focuses-on-key-trading-partners/25312.article

7.   Reinsurance ‘Demand is Going to Outstrip Supply’ at Jan. 1, Say Experts, Advisen FPN, September 27, 2022.
     https://www.advisen.com/tools/fpnproc/fpns/articles_new_1/P/447434798.html?rid=447434798&list_id=1

8. Hurricane Ian to Add Reinsurance Rate Momentum, Disrupt Florida Market: KBW, Artemis, September 29, 2022.
   https://www.artemis.bm/news/hurricane-ian-to-add-reinsurance-rate-momentum-disrupt-florida-market-kbw/

9. What Made Hurricane Ian so Intense: By the Numbers, The Washington Post, October 4, 2022.
   https://www.washingtonpost.com/climate-environment/2022/10/04/hurricane-ian-statistics-deaths-winds-surge/

10. Insurers Hold a Hard Line on Reported Property Values in 2022, CRC Group, June 2022.
    https://www.crcgroup.com/Tools-Intel/post/insurers-hold-a-hard-line-on-reported-property-values-in-2022

11. CIAB Full-Time Wrap on US Cat: The Fight for Capacity, The Insurer, October 11, 2022.
    https://www.theinsurer.com/news/ciab-full-time-wrap-on-us-cat-the-fight-for capacity/25606.article?utm_medium=email&utm_
    campaign=Daily%20Breaking%20news%20-%20Premium&utm_content=Daily%20Breaking%20news%20-%20
    Premium+CID_1cb9b4522695b2c804005f6b1870a60c&utm_source=Campaign%20Monitor&utm_term=CIAB%20full-time%20
    wrap%20on%20US%20cat%20the%20fight%20for%20capacity

12. Hurricane Ian Disrupts Already Difficult Reinsurance Renewal Season, Business Insurance, October 10, 2022.
    https://www.businessinsurance.com/article/20221010/NEWS06/912352988/Hurricane-Ian-disrupts-already-difficult-reinsurance-
    renewal-season