Hong Kong Q3 Market Dynamics
Landscape
After the government instituted the city’s first lockdowns due to outbreaks early in 2021, COVID-19 infections in Hong Kong have remained relatively contained in the second and third quarters of the year. By the end of September around 56% of the population had been double-vaccinated. Revival of exports and consumer activity have seen the government revise its real GDP growth forecast for 2021 as a whole up to 5.5% to 6.5%. This recovery follows a recession that predated the pandemic, beginning in 2019, as the territory was hit by China-US trade disputes and protests against the PRC-backed government. As consumption increased, inflation measured by the Consumer Price Index reached an annual rate of 1.2% in August. As of the beginning of October, the base interest rate remained at 0.5%.
Elections for the Hong Kong Legislative Council election are scheduled for December 2021, which will take place under new rules enacted in March 2021. These increased the number of seats from 70 to 90 but reduced the number of directly elected members from 35 to 20 and allocated 40 to a new Election Committee. This was itself elected in September from a list of officially approved candidates.
Key Indices - Hong Kong
Market Dynamics
Hong Kong Featured Products Q3 2021
Q3 Automobile Summary
Overall (Stable) As a result of the severe economic impacts of COVID-19, the Motor Insurers Bureau of Hong Kong has announced that, as of October 1, 2021, Motor Insurance levies of 3% have been suspended. Insurers experienced a loss in Q2, but the Q3 market remains generally stable.
Rates (Flat) Flat renewals are common and, in some cases, rate reductions can be achieved, dependent on individual loss experience.
Capacity (Ample) Capacity continues to be stable; however, there is a very limited market for fleet coverage.
Underwriting (Prudent) Appetite remains focused and underwriting is conservative.
Limits (Stable) “As expiring” limits are common; insureds are not seeking limit increases.
Deductibles (Stable) Deductibles are renewing as expiring, with the exception of loss-active risks which may experience a deductible increase.
Coverages (Stable) Coverages remain stable with no new exclusions being generally applied.
A Look Ahead (Stable) Current market conditions are expected to continue. Strikes, Riots and Civil Commotion Coverage may be reconsidered in some cases.
Q3 Casualty/Liability Summary
Overall (Challenging) The market remains challenging, particularly for global programs with US domiciled exposure
Rates (+1-10%) Flat to modest increases can be achieved for well-performing local risks, while larger, global programs are experiencing more significant increases.
Capacity (Constrained) Full capacity is typically not deployed - for renewal or new business - without strong justification.
Underwriting (Prudent) While front line underwriters remain focused on retaining business, regional underwriting teams are price-focused, even at the risk of losing business. This has led to longer timeframes for renewals as extensive negotiation is required. In addition, underwriters are requiring extensive, detailed information and are scrutinizing risk.
Limits (Stable) “As expiring” limits are common; insureds are not seeking limit increases.
Deductibles (Stable) Deductibles are stable, although insureds are considering options to help offset price increases
Coverages (Stable) Coverages remain stable with no new exclusions being applied, except on a risk-specific basis.
A Look Ahead (Stable) Current market conditions are expected to continue.
Q3 Cyber Summary
Overall (Challenging) Increasing loss frequency and severity – combined with growing uncertainty in this space – has led to challenging market conditions.
Rates (>+30%) Insurers are remediating historic under-pricing by imposing significant rate increases.
Capacity (Constrained) Capacity is constrained and there is a trend for insurers to move higher up the tower, with many now reluctant to write the primary layer.
Underwriting (Stringent) Underwriting is rigorous and selective. Most underwriters are requiring supplementary questionnaires focused on ransomware and multi factor authentication.
Limits (Decreasing) Primary limits are reducing as underwriter appetite for primary coverage contracts.
Deductibles (Increasing) Deductible adjustments have become common as insurers are looking to insureds to have more “skin in the game”.
Coverages (Restricting) Underwriters are looking carefully at ransomware and internet service provider risks and there is a growing trend to tighten coverages for associated risks.
A Look Ahead (Challenging) As risks continue to evolve and grow, underwriters will remain cautious and market conditions are expected to remain challenging.
Q3 Directors & Officers Summary
Overall (Challenging) The market continues to be challenging, with significant price and deductible increases, capacity contraction and, for complex risks, limit reductions.
Rates (+11-30%) Pricing remains challenging for US listed risks, driven mainly by political tensions and uncertainty surrounding the regulatory environment in China. Non US listed risks are also experiencing significant increases – but to a lesser extent than US listed risks.
Capacity (Constrained) Insurers are leveraging capacity management strategies to limit exposure on any one risk. Some international insurers are reducing capacity on large and complex programs that had enjoyed robust capacity in the past.
Underwriting (Stringent) Underwriting is rigorous and underwriters are spending more time on risk assessment – asking many questions and requiring extensive exposure detail.
Limits (Stable) Limits are generally stable, except as respects large and complex risks which are facing reductions due to insufficient capacity as well as (to a lesser extent) insureds looking to balance price increases.
Deductibles (Increasing) Insurers are increasing deductibles to limit their risk following poor loss performance in recent years.
Coverages (Restricting) Insurers are restricting coverage for US IPO companies (limiting coverage to Side A only), and imposing restrictions such as Cyber and Insolvency Exclusions.
A Look Ahead (Challenging) Stabilization is expected as insurers eventually reach rate sufficiency following several cycles of significant rate increases
Q3 Employers Liability/Workers Compensation Summary
Overall (Stable) In 2020 and 2021 loss performance has been favorable, shifting underwriting results from a loss to profitability. Despite that, insurers are under budget pressure in H2, 2021, and focused on retention and growth – even for risks previously declined - keeping market conditions stable.
Rates (Flat) Despite the increase in treaty costs and EC Ordinance Compensation Limits, market forces are serving to keep rates stable.
Capacity (Abundant) Capacity is abundant.
Underwriting (Prudent) While there is greater underwriting focus on employee work and health safety policies – including work-from-home policies –pricing remains based on the nature of the job and loss history.
Limits (Stable) Limits are in line with compulsory statute.
Deductibles (Not Applicable)
Coverages (Broadening) Coverage is mandated by the EC Ordinance, which recently revised levels of compensation and refined the policy conditions in relation to “extra-ordinary weather conditions”.
A Look Ahead (Stable) In light of favorable performance, insurers are under pressure from insureds to maintain current pricing levels. Increased exposure (i.e., payroll and employee count) is expected as the economy reopens and returns to pre-pandemic levels in late 2021 and 2022.
Q3 Property Summary
Overall (Stable) Moderate market conditions apply to most risks; however, conditions are challenging for complex risks with Natural Catastrophe exposure and/or poor performing risk types.
Rates (Flat) Pricing is generally flat but varies by risk performance. Favorable risks are seeing modest rate reductions while poor-performing risks are experiencing rate increases.
Capacity (Constrained) Capacity is constrained, particularly for complex, global Natural Catastrophe programs.
Underwriting (Prudent) Local insurers are demonstrating flexibility while international insurers are more rigid and rigorous.
Limits (Stable) Limits are generally flat, except for risks requiring Natural Catastrophe coverage, which are experiencing a contraction.
Deductibles (Stable) Deductibles are generally flat.
Coverages (Stable) Coverages are stable; however, exclusions continue to be required for Cyber, Terrorism, Strikes Riots and Civil Commotion, and Communicable Disease.
A Look Ahead (Stable) Conditions are expected to remain stable for the remainder of 2021.