The Aon international property sector is split 25% Australia Pacific, 9% Asia, 10% Canada, 48% EMEA and 8% Latin America. It represents 52% of our total property portfolio, with 48% from the USA. The overall trend was one of firming, with pockets of hard market, depending on country, industry, and client specifics. At one end of the spectrum, we observed flat renewal terms achieved by clients from countries that had seen earlier (2017-2019) rate spikes such as New Zealand and Chile, indicating rate adequacy had been met. On the other hand, in Europe and Canada, we noted significant rate and self-insured retention increases for the food and beverage and forest product industries because of local market capacity withdrawals and deterioration in loss experience, together with lead markets' reluctance to take on other carriers’ past problem accounts.
In the centre of the rate firming range were Africa, Asia (including Japan), Australia, and the Middle East, which was one of the hardest rate regions in 2019. Russia and Central Europe saw rate firming due to metals industry loss activity. Latin America was a mixed bag, with the widest range of differing carrier views on acceptable terms observed.
In our combined international book of business region, we experienced the following rate changes.
Fig 1: International property
The main feature in the regional market is there are very large placements requiring in-country, Asia regional, and London capacity, with buyers using the competitive dynamics of the global markets to secure the optimum terms. In the past 24 months, tightening of local terms due to loss activity shifted larger shares to London, but this wasn’t a blanket trend, and case-by-case factors remained more important. This report and data complement market reviews published by the Aon Global Broking Centre Hub in Singapore, which should be considered in conjunction.
In the region, we observed the following rate changes:
Fig 5: Asia
Within the Asia data above, we observed the following country trends:
China Rate change range was between 6% and 22%, with a median of 15%. Loss activity was below average; even in Wuhan, clients who had extensions of cover to include pandemic situations did not submit business interruption losses.
Japan A major earthquake-free 2020 gave carriers a break, with rate increases ranging between 5% and 18%, with the median around 9%. There were losses in the IT industries, including significant contingent amounts, highlighting the importance of detailed supply chain analysis and appropriate policy coverage and limits.
Philippines Buyers explored options in the London market for primary and sideways primary layers, but firm orders were limited. Rate range was between 5% and 9%, with the median around 7%.
South Korea Focused on major technology companies purchasing large policy limits, rate change ranges were between 4% and 30%, with a median of 14%. Of note was the over-supply of capacity in the primary layers, while tight capacity on higher layers meant much larger rate on line premium changes were secured by carriers in 2020. Some offered top and tail or ventilated deals (primary and excess layer with a gap) that were contingent on capacity for both layers being taken up.
The Australian local market is still in correction mode, meaning London orders increased for the third consecutive year. Our premium volume data showed an increase of 29% year-on-year, coming from a slightly increased client count. Climate-related losses from wildfire, storm, and hail kept the pressure on terms, and insurers focused on natural catastrophe exposures. The biggest capacity buyers are experiencing the largest increases due to the requirement to purchase near full available market capacity (circa AUD 4 billion) and the tail often raises the overall blended placement cost. Further capacity reductions and pricing adjustment from long-term insurer partners and the impact of replacing their participation in the more expensive spot/transactional market resulted in some of the largest rate increases across our portfolio. Clients were obligated to substitute lost proportional lines by more complicated layered programmes with an increase in the number of participating insurers.
"Our premium volume data showed an increase of 29% year-on-year."
For Australian risks, we observed the following rate changes:
Fig 6: Australia
Without the impact of COVID-19, we were expecting the level of rate increases during 2020 for the Australian risks to begin to lose impetus. Once clarity on these losses and recently improved rating start to show up by way of improved loss ratios, we would not be surprised to see Australian insurers start competing for market share, and pressure on rating levels return towards the end of 2021 and into Q1 2022. We cover the mining and metals sector, which is important for Australia, in a special section of this report, and loss activity here can often drive wider market trends.
Historically Australia has had short hard market time-frames compared to other countries, with regular new entrants, but this time is one of the longest, starting in September 2017. It is why we believe a change in sentiment is more likely than in some other regions.
London deal flow from Canada spiked in 2020 on the back of a steady increase in 2019, driven by significant changes in local market capacity for higher risk industries and/or loss active accounts. We saw a 43% increase in quote requests, resulting in a 28% growth in overall client count. Many of the major Canadian insurers re-wrote their heavy industry portfolios, reducing limits or seeking much higher attachment points. How much more energy is left in this trend is difficult to assess; at 1 January 2021 it was still strong, and we haven’t seen signs that this will change.
Mid-market Canadian risks, often placed via broker facilities into Lloyd’s, have also seen disruption, with many programmes being extensively remarketed to secure improved terms but often returning to the original leader. Again, a sign there may be further upwards momentum during 2021 before more competition enters the market.
Fig 7: Canada
Europe (excluding the UK)
Lead positions on most Northern European placements tend to be offered in-country or by referral to French, German, Nordic, and Swiss leaders. This pattern has been disrupted in 2021, particularly in the food and beverage sectors, where many European leaders have exited. There were also pockets of hard markets where Ex-FM-led programmes came to the market, or loss active accounts from Austria, Belgium, Germany, Israel, the Netherlands and Switzerland. These buyers sought alternative options/capacity from the London market, with the availability of Aon property facilities helping to complete placements. Some buyers who arrived late to the party paid higher prices to secure capacity than those with longer lead times, which offered better negotiation dynamics. In Europe (excluding the UK), we experienced the following rate changes:
Fig 8: Europe (exc UK)
"The upgrade of relations between Israel and the UAE is an interesting market development because of the Dubai market hub."
In comparison, Nordic buyers, who already had a foot in the London market, secured competitive terms based on typically higher quality risk engineering information and an ability to place chunks of what they perceived to be over-priced layers into captive insurers. Russia and Central Europe saw local insurers seeking rate increases, many for the first time in a decade, which drove some repositioning of capacity, but only in a modest way, and mostly in the primary layers. The major European reinsurers view the region as under-priced and continue to stay on the sidelines, which remains a surprise because it has been one of the most profitable regions based on Aon’s data, admittedly from a heavily metals industry-weighted sector, which did have losses in 2020. The major Middle East metal smelters utilised freshly created captive insurers to mitigate the loss of regional capacity and the return of underwriting authority to London and European head offices, providing some respite to what remains a hard market sector. Increased retentions meant losses to carriers reduced. We expect that 2021 will see an easing of upwards rating trend for the region, particularly as local carriers’ appetite appeared to be returning in Q4 2020. Further details on the metals and mining sector are in a separate section of this report. The upgrade of relations between Israel and the UAE is an interesting market development because of the Dubai market hub. We expect new capacity options for Israeli risks to emerge. Shares of programmes from South Africa, Nigeria and Ghana placed in London increased. Buyers from the mining industry experienced a continued re-rating of programmes, and London and European carriers remained the principal provider of capacity where large policy limits were required.
Rate change was country-specific, with some easing of pressure for Chile following significant strikes, riots, and civil commotion (SRRC) losses in 2019, creating rate spiking that levelled out. Brazil was the hardest market country during 2020, with local insurers reporting major losses. Mexico, Central America, and the Caribbean, with large windstorm exposure, saw competition returning to primary layer pricing as 2020 ended. Large limit buyers continued to experience rate increase on higher layers, while regional carriers, backed by facultative support, remained opportunistic but did not move the market downwards. Coverage for SRRC was available but often purchased as reinsurance from the specialist political violence markets. Swiss Re and Munich Re are significant capacity providers in the region and maintained greater underwriting discipline than regional or certain smaller (re)insurers. Our expectation is that this trend may come under pressure during 2021 as competition for market share returns.
In the Latin America region, we observed the following rate changes:
Fig 9: Latin America
New Zealand placements that faced significant re-rating during 2017-2020 have been one of the first to see signs that rating levels may have peaked. This trend has been aided by sufficient, competitively-priced capacity available to deliver on average flat or low single-digit increases at renewal, plus government pressure for insurers to assist policyholders during these challenging economic times. The number of Aon London placements for New Zealand clients increased by 7% - indicating some pricing differential remains between local and international carriers.
2021 sector outlook
Discussions with carriers and the close analysis of their business plans indicate total per risk capacity at the start of 2021 will be stable or slightly increased. We anticipate the trend of over-supply in the primary layer and under-supply on excess layers to even itself out as the year progresses. Exclusions for pandemics and cyber write-backs will remain a focus, with London remaining less flexible than European carriers, who are also tightening up terms. Carriers are very focused on profitability now, so change may be slower than in past cycles. The trend for larger and new climate change-related natural catastrophe events and a low-interest-rate environment means carriers will likely be cautious when seeking growth than in past market cycles. We have observed examples of increased lines being offered on favourite accounts to scalp small signing increases at 1 January 2021, but in a way that doesn’t add material competition. The contrarian view is high levels of profitability for the best London and European carriers in the sector (Aon’s international property claims data shows many have claims loss ratios below 50%) may awaken new levels of carrier competition from the mid-year point. If this does happen, and in past cycles we know it can happen quickly, it will impact the most profitable countries and industries first, before a broader market change.
"Carriers are very focused on profitability now, so change may be slower than in past cycles."