Iberia Q3 Market Dynamics
Landscape
Portugal and Spain both faced a further wave of COVID-19 infections in the third quarter of 2021, with infections subsiding in September. The impacts have been lessened by two of the most successful vaccination campaigns in Europe: over 75% of the Spanish and almost 85% of the Portuguese populations had received two doses by the end of September. The two countries have also seen substantial economic recovery this year, with Portuguese figures for the second quarter of 2021 showing year-on-year GDP growth of 16.2%, compared to 17.5% for Spain. However, the figures point to significant challenges and uncertainties: in a September statistical revision, Spain recorded GDP growth of 1.1% in quarter two (down from an earlier estimate of 2.8%), while the economy was found to have contracted by 0.6% in the first quarter.
The Bank of Spain predicts 6.5% GDP growth over the year as a whole after 2020’s drop of 10.8%, while the official forecast for Portugal is 4.8%, following an 8.4% fall. Both countries have received EU approval for their recovery plans, which include investment in infrastructure and green energy. Along with other places in southern Europe, the Iberian Peninsula was hit in summer 2021 by an extreme heatwave triggering wildfires. The insurance market remains challenging, with continued rate escalation in most product lines. Capacity is generally sufficient, although there is continued contraction in some challenging products and risk types.
Key Indices - Portugal
Key Indices - Spain
Market Dynamics
Iberia Featured Products Q3 2021
Q3 Automobile Summary
Overall (Stable) The decrease in activity due to COVID-19 related restrictions has contributed positively to the performance of the Auto market, allowing insurers to recoup losses from prior years, which were marked by poor performance. As restrictions eased significantly during 2021, losses have started to return to their historical averages; however, the market remains modestly favorable for insureds.
Rates (Flat) Pricing is driven by sector, as well as historical, risk-specific performance. Risks renewing in Q3 were moderately priced – some slightly upward and some slightly downward.
Capacity (Ample) More capacity has become available and insurer appetite has increased as the market transitions away from harder conditions.
Underwriting (Prudent) Insurers are requiring detailed underwriting information; however, insurers are demonstrating flexibility in terms of capacity and appetite for risks they deem favorable.
Limits (Stable) Expiring limits can be achieved on most placements. Deductibles (Stable) Insurers have become more receptive and flexible on deductibles which had previously been declined.
Coverages (Stable) Coverages remain stable.
A Look Ahead (Stable) Prior years’ re-underwriting and re-pricing, combined with more favorable claims performance due to COVID, have resulted in better results for insurers. In turn, continued favorable market conditions are expected.
Q3 Casualty/Liability Summary
Overall (Challenging) A challenging market persists, particularly for poor performing industries such as automotive and transportation & logistics, as well as North America risks and Product Liability exposure, which are experiencing very limited insurer appetite.
Rates (+11-30%) The market continues to harden with double digit rate increases now the norm.
Capacity (Constrained) Capacity has continued its downward trajectory which is having an impact on placement limits, although insurer ventilation and the use of reinsurance is helping to moderate the impact.
Underwriting (Stringent) Quality, detailed underwriting information is key and needs to be provided to insurers with as much time as possible as the underwriting process is taking longer due to appetite contraction and the centralization of authority.
Limits (Stable) While limits are generally stable, reductions can be experienced for risks associated with wildfire, US and Canada exposure, and automotive.
Deductibles (Increasing) Deductible increases, especially in large and complex risks, have become common, largely as a mechanism for reducing premium spend.
Coverages (Restricting) Coverages are tightening, especially related to product liability extensions and pure financial loss with USA / CAN exposure.
A Look Ahead (Challenging) The current, challenging market conditions are expected to continue.
Q3 Cyber Summary
Overall (Challenging) The market is extremely challenged due to an increase in loss frequency and severity. Underwriters are scrutinizing risk and requiring extensive, detailed underwriting information. Placements require long lead times and well planned strategies.
Rates (+11-30%) Rate increases for smaller, non-complex risks are significant, while complex risks are experiencing severe increases. Risks with losses may see severe increases, if coverage is offered at all.
Capacity (Constrained) Insurers are limiting their capacity on all risks, and generally offering capacity only to favorable risks with strong cybersecurity management. Capacity may be insufficient for some large placements.
Underwriting (Stringent) Some insurers have withdrawn from writing new business. Underwriting practices are rigorous and detailed information is required.
Limits (Decreasing) Insurers are imposing decreases in the limits of some placements aimed at limiting their exposure.
Deductibles (Increasing) Underwriters are imposing severe deductible increases.
Coverages (Restricting) Restrictions and exclusions have become common, particularly related to ransomware, biometrics, cyber extortion and business interruption.
A Look Ahead (Challenging) Current challenging market conditions are not expected to change in the near term. Rate increases are expected to continue their trajectory even as the scope of coverage is being redefined.
Q3 Directors & Officers Summary
Overall (Challenging) Continued poor loss performance is driving market conditions, with the uncertain economic outlook and precarious financial position of many companies adding an additional layer of complexity to the D&O outlook. In the claims arena, insurers are continuing to involve external lawyers in the review and management of D&O claims which is creating an additional layer of complexity and delaying the negotiation process.
Rates (+11-30%) There is limited appetite for lead positions and this, combined with a pull-back in capacity, is driving D&O pricing increases well into the double digits, even for the most straight-forward renewals, while large and complex placements are experiencing more severe increases. While D&O pricing is very challenging, Cyber pricing now exceeds D&O.
Capacity (Constrained) New capacity is gradually entering the market but is limited to excess layer participation and therefore having a limited stabilizing effect on pricing.
Underwriting (Stringent) Underwriting scrutiny continues, with robust, thorough underwriting information required to consider any risk. EPL risks – especially those with US exposures - are experiencing very limited market appetite.
Limits (Stable) Insurers are transitioning to coinsurance arrangements to limit their risk. Insureds are exploring options – including reducing limits - to help mitigate premium increases, but very few have actually opted to reduce them.
Deductibles (Increasing) Many risks experienced a deductible correction in 2020 so have not experienced another in 2021. Insureds evaluating deductible increases as a way to offset rising premiums are typically not opting to raise them, as the increase is not commensurate with the premium reduction offered by insurers. There is a trend to include new deductibles or coinsurance for emerging risks such as computer fraud.
Coverages (Restricting) Insolvency and pandemic clauses continue to be applied.
A Look Ahead (Challenging) Market conditions will remain difficult throughout 2021, with continued tight capacity, mandated coinsurance on some risks, and a rigorous underwriting environment.
Q3 Professional Indemnity Summary
Overall (Challenging) Hard market conditions continue, with limited appetite and constrained capacity for some classes. Pricing and deductibles continue to increase significantly. There are limited markets in this space.
Rates (>+30%) Depending on segment and business activities, significant minimum increases have become common while poor performing risks or those that are still deemed underpriced may experience much higher increases.
Capacity (Constrained) Appetite is narrow and there is increasingly little interest to write lead layers, tier 1 law firms and accountants, engineering, aerospace and defense risks.
Underwriting (Stringent) Underwriting is rigorous and stringent, and high-quality information is required.
Limits (Decreasing) Insurers are requiring limit decreases, in some cases, and in other cases, insureds are exploring reduced limits as a mechanism for offsetting premium costs.
Deductibles (Increasing) Insurers are requiring deductible increases, in some cases, and in other cases, insureds are exploring higher deductibles as a mechanism for offsetting premium costs.
Coverages (Restricting) Coverages are consistent with hard market conditions. Cyber restrictions are being broadly applied.
A Look Ahead (Challenging) Current market conditions are expected to continue through the remainder of 2021.
Q3 Property Summary
Overall (Challenging) There is uncertainty around the ultimate impact of COVID-19 on the Property market. This, combined with a broadly conservative underwriting approach, and poor historic underwriting results, is creating an environment where rates, conditions and capacity continue to come under scrutiny albeit with new entrants potentially providing a stabilizing effect.
Rates (+11-30%) Market pricing remains challenging, especially for poorly engineered and underperforming risks. There has been some stability for favorable risks, and even some premium reductions for less exposed classes.
Capacity (Constrained) For large or complex risk, restrictive appetite and centralized underwriting is leading to capacity constraints, requiring innovative placement strategies involving the use of increased retentions as well as international direct and reinsurance markets to solve clients’ risk transfer needs. For smaller risks, capacity is sufficient, except as respects aggravated occupancies such as Waste, Food & Beverage, and Chemicals, and/or poor-quality or poor performing risks.
Underwriting (Stringent) A focus continues on risk information, including engineering reports, and industry-specific risk, and is not expected to change, especially for companies in the Food & Beverage, Waste, Energy, and Pulp & Paper sectors. Property value declarations and related sums insured are also becoming a focal point, particularly amongst insurer claims teams, and quality of surveyors is something to watch going forward.
Limits (Stable) Limits are stable, except where insurers are deploying capacity management strategies.
Deductibles (Increasing) There is a general push toward higher deductibles, especially for risks which avoided increases in past recent renewals, which will likely experience an increase at their upcoming renewal. The deductibles for well-performing middle market risks are mostly stable.
Coverages (Restricting) Insurers continue to review wordings and limit coverage (e.g., cyber, communicable disease, Contingent Business Interruption).
A Look Ahead (Challenging) Challenging conditions are expected to persist; however, but new insurers are entering the market which could temper the situation. Underwriting rigor is expected to continue.
Q3 Trade Credit Summary
Overall (Stable) As a result of favorable loss trends and an increasingly competitive marketplace - with insurers actively pursuing new business and growth – market conditions remain favorable for insureds.
Rates (Down) Pricing remains competitive; reductions can be achieved on most placements.
Capacity (Ample) Capacity remains stable and sufficient, with no notable deterioration.
Underwriting (Flexible) Underwriting remains flexible and accommodating, especially when high quality information is provided to support the process.
Limits (Increasing) Limits are available to accommodate most requests by insureds.
Deductibles (Decreasing) Deductibles are reducing at the request of insureds.
Coverages (Broadening) Broad coverages apply; in general, very few limitations are being imposed.
A Look Ahead (Soft) Post-summer loss data will be important as this period has historically seen an up-tick in losses which in-turn has an impact on pricing in Q4 as insurers look to incorporate the latest data into their underwriting models. A substantial change; however, is not expected to the current market environment.