2023 London Market Appetite Survey

Sustainable Energy the standout class for 2023, with 80% of insurer respondents planning for significant growth, Howden’s London Market Appetite Survey finds

30 March 2023, London – Howden, the international insurance broker, has released its annual London Market Appetite Survey, assessing underwriting appetite by line of business and providing a comprehensive outlook for the London Market in 2023.

The survey of 43 insurers (up 13% from 38 in 2022) was conducted in December 2022, and comprises a mixture of Lloyd’s syndicates and company markets. C-Suite respondents indicated the degree to which they plan to grow or contract GWP in 2023 by line of business. Building on last year’s report, this year’s findings reinforce the impact of global economic and geopolitical events, with the latter being a driving force in the growth achieved by Political Violence & Terrorism and War classes.

Author of the report Paul Cumberland, Executive Director, Howden Markets Consulting says: “With the relatively modest rate increase anticipated for next year across the market place as a whole, it is tempting to think that we are now in a ‘soft market’, however really it is the rate of rate increase that is slowing and that many classes are peaking in terms of rate adequacy.”

In this year’s report, the stand-out class of business was Sustainable Energy. With energy transition and climate resilience at the top of the industry’s agenda, respondents displayed a bullish appetite for this class, with the majority of insurers planning for double-digit growth, mainly driven by new business, rather than rate, and two additional carriers considering entering the space.

Mainstay classes such as North American Property and CAT received muted responses from insurers, whilst Political Violence and Terrorism came out top from an Estimated Risk Adjusted Rate Change (“RARC”) perspective, as social unrest and the ongoing war in Ukraine drove up rates after years of price decreases.

Political Violence & Terrorism making a comeback

Having experienced years of rate decreases, this line of business is going through somewhat of a revival – 2022 was a watershed moment for the PVT market, following the record year of social unrest, and the upheaval caused by the war in Ukraine. This year, survey respondents anticipate another year of rate increases, with the average estimated RARC being close to 20%. New types of cyber-attacks, the ambiguity of war exemptions, and debate surrounding what is considered as a ‘political attack’ will likely continue to complicate this line of business, and may create a greater connection between the PVT and cyber market.

Cyber market stabilising…for now

2022 was a significant year for the Cyber market, validated in this year’s report, which sees an average achieved RARC for 2022 close to 50%. In comparison, this year’s survey estimates that rate increases will be closer to 15%, following further capacity entering an already-competitive market. A reduction in ransomware activity, an improvement in loss ratios, and an increase in capacity are converging to create a more stable environment – for now. There are signs that Cyber and ransomware attacks are on the rise, and the focus of these attacks is once again shifting to the West, potentially destabilising the market after this period of settlement.

CAT events continue to squeeze the marketplace 

2023 sees the appetite for North American property remain as muted as it was the year prior. Rates, however, are expected to increase by an average of 14%, with some carriers even predicting a 30% rise. For US CAT business, respondent appetite is equally as muted with an average estimated RARC of 50% for 2023, aligning well with the insights made in Howden’s recent publication, ‘The Great Realignment’. Only two insurers provided a high appetite score for US CAT, potentially looking to take advantage of favourable pricing conditions.

Sustainable Energy front and centre

Further to 2022’s report, where the survey revealed that the market was keen to embrace new markets such as Sustainable Energy, this year’s findings reveal that that 80% of Insurers plan for growth in Sustainable Energy, with an average planned GWP growth of 13% across respondents. This year, 35 insurers responded with planned growth of between 15-25%, with two further markets considering entry into this line of business. Whilst the appetite for this line of business is strong, the expected risk adjusted rate change is subdued, suggesting that planned growth will be driven primarily by new business. As the most popular line of business, competition for 2023 is set to be fierce, which may put further downward pressure on rates.

Mark Gregory, CEO of AXIS International, commented that “Howden’s London Market Appetite Survey provides valuable insights into current market appetite and sentiment. Findings in the report significantly contribute to our assessment of growth opportunities in the London market and our approach to particular specialist lines of risk, helping us continue to differentiate our propositions to brokers and for clients on a global scale.”

The ‘London Market Appetite Survey’ report compares planned GWP growth to risk adjusted rate change per product line – the delta of which is deemed appetite for new business. For those classes with growth targets significantly over and above estimated rate increases, a lot of new business will have to be written to satisfy ambitions. The question remains about whether there is sufficient business flowing into London to keep rates positive and appetite satisfied.

Toby Pollard, Managing Director, Head of Howden Markets says: “Our focus on research is designed to help the entire value chain – clients, colleagues and insurers – understand the direction of travel within the London Market they operate within.  This report’s insights and granular, line level detail, genuinely provides real client value through the application of market appetite across the Howden Broking Group portfolio.”