‘Alarm bells should be ringing’ over California, warns AM Specialty

Property is top of everyone’s watch list in 2023 as property rates have “accelerated quite dramatically”, says Shevawn Barder, chief executive officer of AM Specialty, as she discusses key market conditions with Monte Carlo Today.

She does not expect dramatic rate rises for this business line to continue into 2024, but she does think property rates will “stay strong” into next year because of the underlying situation with storm activity, such as the recent Hurricane Idalia.

“The initial reports have suggested that insured losses for Idalia are not as bad as everyone expected. There was a lot of water, but there wasn’t the same level of storm surge and debris that was experienced in last year’s Hurricane Ian. So that is good news for the market,” she says.

Commenting on property-catastrophe specifically, Barder says activity in certain states in the US marketplace is drawing her attention—for all the wrong reasons.

“California is one that really springs to mind. Mainstream insurers are pulling out of California in a very big way and that should be ringing alarm bells.

“Florida as a state is trying to re-engage with the insurance community and trying to get insurance companies back into that market to write business because again, there has been a bit of an exodus, which has been causing issues on the primary homeowners side,” she explains.

Exactly how this will play out depends on weather rates and capacity, with hail also an issue to watch, although not to the same extent as hurricane, she says.

“You often get new players into the market, they feel that they can dip in and take advantage of certain conditions. But it’s certainly very interesting to see the big players in the US market pulling out of a massive state such as California. That will definitely create issues in 2024.”

A watching brief

In addition to property business, casualty is the other headline component of AM Specialty’s portfolio. The excess and surplus lines carrier and reinsurer is watching developments in casualty very closely as “it’s very intertwined with inflation”, Barder says

In the US, inflation has calmed down. However, changes in the oil or gas price, in response to moves by Russia and Saudi Arabia to extend oil production cuts, could accelerate gas price rises again into the back end of the year. This would feed the inflation index and have ongoing effects on the economy, she warns.

Rates in the directors and officers market continue to decrease in 2023, but Barder thinks that it will still be a strong market in 2024.

She explains: “It’s going to be about capacity, rather than rate—although rate is always an integral component in the overall equation.”

Looking ahead to this year’s 1/1 renewal, Barder says: “If we have a benign hurricane season, that will create calm within the reinsurance market and probably ease 1/1 renewals.

“As an outlier, the Vesttoo situation has had an impact in certain components within the market, particularly the programme market. That capacity will be missing from the market as people face their 1/1 renewals.”

Barder says that everybody wants to be in the US market because it’s such a stable market, and that creates a demand.

“However, other than property, I can’t see there is going to be huge acceleration within the rate environment in 2024. Property is an outlier, and if there’s hurricane activity obviously we’ll see an adjustment to rates with regard to that,” she says.

“The next issue is capacity. For managing general agents (MGAs), capacity has to be at the top of their lists. They have always to focus on capacity, because you’re only as good as your next renewal.

“If you don’t have capacity, you’re not writing business, and there is a significant lack of capacity in the market. So that will obviously be a high concern for most companies in the market.”

In response to this lack of capacity, brokers and MGAs have their data ready and are approaching the market “very early” to ensure they have the capacity in place by the renewal date. “That is something that I’ve really noticed—people are coming to market much earlier.”

Compared to last year’s hectic and late-finishing 1/1 renewal, Barder still expects a calmer renewal, as long as there is no major hurricane activity.

“The biggest thing is still going to be a lack of capacity; it is going to be thin on the ground. That’s going to keep rates up and might prolong 1/1 negotiations.”

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