In its spring update for Canada, Aon said the property and casualty (P&C) industry is primed to focus on growth in 2023, after weathering economic challenges and natural catastrophes in the past several years.
Despite facing a global pandemic, immense losses from extreme weather events, and supply chain and labour pains, the Canadian P&C market ended 2022 with a profitable combined ratio of 85.44%.
“This time last year, many carriers were still in a form of correction,” said Russ Quilley (pictured), executive vice president, head of commercial risk and chief broking officer at Aon Canada.
“A lot of the conversations that we were having with carriers then was around the stability of their book. Everything was fixated on ensuring the risks were highly protected and the compensation carriers were getting was adequate to the exposure.
“The carriers are now seeing a different return. So, the conversation in 2023 is changing to, ‘how do I grow in this market?’ I think that’s creating an opportunity for clients.”
The backdrop of this potential opportunity is tougher economic conditions, heightened by the ongoing crisis in Ukraine.
Aon’s insurance market update for spring 2023 highlighted “strong headwinds,” including rising inflation and interest rates.
The global growth rate is seen to sharply decelerate for the rest of the year as central banks continue to hold tight policy stances, though Aon expects commodity prices will begin to ease in the latter half of the year.
The Bank of Canada maintains its forecast that headline inflation will fall to 3% in the second half of 2023 due to high interest rates, supply chain improvements, and lowering energy prices, the report continued.
However, four factors will continue to influence the market’s trajectory in the coming months, according to Aon:
Among specialty lines, Quilley noted a significant transition in the directors and officers (D&O) insurance market, with more capacity entering the space. The cyber market has also seen drastic changes in a positive direction.
“The transfers and mitigation factors that have come together among clients is creating a less severe market for cyber,” he said.
Aon’s report also highlighted the January 2023 reinsurance renewals as one of the most challenging in a generation, marked by “meaningful rate increases” and low capacity.
Quilley told Insurance Business he expected the dynamic to continue for the rest of the year.
“Reinsurers did have an increased cost that was pushed on to carriers, who will be looking at ways to either pull that back into their costing structures or translate that cost into the marketplace,” he said.
Aon estimated that global reinsurer capital fell by 17% during the first nine months of 2022, driven by unrealized losses on their investment portfolio due to the increase in interest rates, climate events and the Ukraine war.
“During an inflationary period, carriers are buying increasing limits to compensate for the same risk that they had previously. But if inflation was 10% to 15% on their book, they need to buy even higher limits,” he said.
There was an estimated $4 billion in additional limits purchased in the Canadian market for 2023, according to Aon’s report.
Despite this, Quilley anticipates that the rosier outlook for carriers will help them become more flexible in negotiations.
“Reinsurance will be an interesting conversation for the rest of the year. It’s a relevant conversation [for brokers],” he said. “But I also don’t want to lose sight of the fact that it’s very property specific, and carriers’ books do not fall 100% in the cat zone.”
Insureds’ risk mitigation strategies will be under greater focus as carriers will “require more information and stronger risk management practices than ever before.”
To help them spot emerging opportunities for their clients, brokers should leverage data analytics to gain more insight into the market and understand where capacity is flowing, Quilley advised.
“I also think regular dialogue with senior leadership regarding their strategies is useful,” he said. “Making sure you’re aligning with their teams so they understand where those transitions are happening [is key] so that you’re bringing risks forward to maximise what can be achieved in this market.”
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