Overall, 2023 was a relatively benign year for Downstream insurers with a return to profitability however this does need to be tempered with what has been a deteriorating claims position for both the 2021 and 2022 years of account. However last year’s profits are undoubtedly leading to an increase in capacity both from existing insurers and with the introduction of new MGAs into the market space. Taken together we expect this to translate into better news for clients as we enter 2024 with a softening of the market in terms of rating. Of course, the level of softening will be dependent on a number of factors including the usual considerations of loss record; risks deemed to be well engineered; amount of Nat Cat exposure (i.e. risk location). Generally speaking, the recent January 2024 Reinsurance Treaty renewal season has been relatively straightforward and we are therefore not expecting this to overtly impact the stance of the direct market and the softer rating trend which we had seen in Q4 2023.

Areas which continue to be a cause for concern, and which require continued monitoring are ESG, Business Interruption and Valuations:
 

• ESG - there remains no market consensus on this topic. As has been widely reported some of the major European Insurers have tended to be the ones taking the toughest stance and it will be important to keep a close eye on how their positions could affect future market capacity particularly in certain sectors of the Downstream book.
• Business Interruption – this coverage continues to be under the spotlight across the market, not least as a result of the significant part it has played in losses in recent years, particularly in the US. We expect Insurers to continue to push for tighter parameters within BI Volatility Clauses to try and reduce the uncertainty of any potential claim amounts. From a Client’s perspective, the best way to push back on this is to provide ever more detailed and up to date breakdowns of their Business Interruption Values.
• Valuations – Insurers continue to expect Clients to have undertaken recent revaluation exercises to ensure their Asset base is correctly valued in what post-Covid has been a high inflationary environment across the globe. Many clients we have seen have employed major valuation companies to assist with this exercise and when this occurs it is well received by the market. Where no recent valuation exercise has been undertaken and Insurers deem there to be under-insurance then the market will look to impose a rating load to compensate.

In summary for 2024 we look to be shifting towards a market in the client’s favour and particularly those well engineered risks with a good loss record can expect to see a move towards reductions in rating.