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A chair sits on a flooded roadway in the wake of Hurricane Ian on Sept. 30, 2022, in Matlacha, Fla.
Source: Getty Images
A hard market, higher reinsurance costs and ongoing low M&A activity are in the cards for property and casualty insurers in the new year.
While they look ahead to 2023, insurers will look back on 2022 as a year full of turbulence. The causes included a pair of destructive late-season hurricanes that exacerbated the ongoing property insurance crisis in Florida, soaring loss costs and severity for personal auto carriers, and a reinsurance market that is poised for increased rate but shrinking capacity.
The yearlong turmoil in the U.S. market morphed into a perfect storm in October when S&P Global Ratings downgraded the P&C sector to “negative” from “stable.” S&P Global Ratings Senior Director John Iten said the downgrade was based on “very large catastrophe losses … the spike in loss cost inflation that’s hurting underwriting performance” and “a sustained decline in capital markets that’s eroding the value of the investment portfolios.”
Another disturbance on the horizon is a bias lawsuit filed in Illinois against State Farm Mutual Auto Insurance Co. that alleges the company’s automated claims system discriminates against Black customers when filing an insurance claim compared to white policyholders.
Size looms large in 2023
Scale will be an important factor for the P&C sector this year, with the market likely favoring larger companies over smaller ones.
The reinsurance market is where the larger versus smaller situation is glaringly present, as larger insurers are in a position to buy less reinsurance and take advantage of expected price increases.
The big companies will be able to take advantage of increased rates and their policyholders’ knowledge that values need to go up because of inflation, said Joseph Peiser, head of commercial risk in North America for Aon PLC.
“They’re going to get more premium even on a…
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