Potential Themes for 2024
2020 was the year of the pandemic, 2021 was the supply chain. 2022 was the year for inflation, and 2023 in turn was interest rates. Will 2024 be the year for geopolitics?
Conventional geopolitical relationships and alliances are shifting, and a more divided world has given way to structural market risk. Geopolitics is likely to be on many people’s minds going into 2024, with all of the following in consideration:
Our clients are well versed in the complexity of planning for such events, any effect they may have on performance, regulation or otherwise. Here are some early trends we are tracking as we look ahead into the next 12 months.
As we enter 2024 continuing China-Taiwan tensions remains an obvious potential risk, and one that has increasingly been subject to scenario-planning by insurers over the last 12 months.
Scenes of civil unrest and financial market disarray during the 2020 US election will be front of people’s minds as the country heads to its next presidential election in November. The political violence insurance market will be watching on with political developments likely to play a larger role in determining the course of the global economy.
There are signs that Lloyd’s will report a healthy 2023 result, given a strong first half year performance and the lack of major losses in the second half, suggesting that the remedial work has done its job. There has been a sustained, multi-year market hardening across many lines of business, which was only exacerbated in 2023 by pricing action in reinsurance. There are expectations for 2024 to continue into more profitable lines for Lloyd’s.
Not all corners of the market have enjoyed a rosy period in 2023 however, especially the public D&O sector, where rates have been in freefall with some questioning the logic of the significant declines in D&O pricing since mid-2022. Some are suggesting recent renewals are creeping back into potentially loss-making territory following the hard market of the prior two years. 2024 will be an interesting time for this market sector, with conversations around the evolving ESG space and greenwashing accusations still ever prevalent.
The reinsurance market made it through 1/1, with reports suggesting a favourable outcome for reinsurers. Reinsurance capacity increased by 10% through year end, driven by rebounding capital in the sector and healthy reinsurer returns estimated to be near 20% for 2023[i]. Higher primary insurance pricing was a driver of increased reinsurance underwriting appetite. However, a variety of unknowns such as the impacts on loss costs of climate change, inflation, litigation funding and the aforementioned geopolitical risks are deterring new investors from entering the reinsurance market. Many will be keeping a keen eye on this space which remains finely balanced and the potential knock-on effect for all other lines of insurance considerable.
With inflation likely lower in 2024 than 2023, insurers and brokers will probably find it more difficult to generate growth. Against this, claims costs are anticipated to continue to rise in 2024. Some commentators[2] have suggested that for insurers, one of the primary focuses in 2023 has been managing inflationary factors that have driven up claims costs. As well as the material increase in claims costs, motor vehicle claims are now rising again towards pre-pandemic levels. Social inflation (the increase in claims costs above and beyond that created by economic factors) as opposed to economic inflation, remains an ongoing factor in price rises. This is, in part, driven by plaintiff solicitors seeing their business model put under pressure and seeking creative ways of maximising the value of claims.
At Bishopsgate, we will be keeping a keen eye on all of the above and have the expertise to discuss and help guide our clients through another potentially challenging year ahead in 2024.
[1] https://www.insuranceinsider.com/article/2cn5fzkz428pvabr447pd/reinsurers-section/reinsurance-market-responsive-for-1-1-renewals-with-ample-capacity-guy-carpenter
[2] https://www.lexology.com/library/detail.aspx?g=f9d435fe-8a7c-4785-a819-e549ac4832b3&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2024-01-03&utm_term=