Time really does fly by. As you read this, you'll have finished off the first half of the year, celebrated our nation's independence and engulfed yourself in a transitioning excess and surplus lines property market that picked up a fair amount of speed and momentum as the year progressed.

I was at a talk recently, and the speaker indicated that if he had one wish, he would hope to be able to see the future long before it happened.

Certainly, this superpower would be advantageous. But the more I pondered it, I realized what makes life so interesting is waking up each day knowing that every day is a chance to do something better or do something differently that might yield an unexpected and favorable outcome. So, if given the chance, I think I might avoid knowing how my future would unfold.

What's Happened in the Property Insurance Market So Far This Year

In the insurance world, seeing the future before it transpired would be valuable, as we're always working hard to predict market cycles and our clients' insurance costs several months out. In some cases, we're trying to project the costs of various assets years out while some properties are still under construction. What's interesting about 2024 is that, when we ended 2023, we all predicted a much more competitive and stable market to guide the narrative of 2024.

What we've gotten thus far is a lot of inconsistency and opportunistic underwriting by many of the major markets. We've also seen carriers fight hard to grow, retain business and increase capacity where they can in order to maintain market share. This behavior has quickly propelled us into a buyers' market that's created a much-needed reprieve for insureds and a lot of frustration among insurance carriers with deteriorating market conditions. The consensus at the end of 2023 was that the market had 12 to 18 months of runway; instead, we've all taken a long walk off a short pier and have had to adjust our expectations accordingly.

The speed at which the market has changed hasn't been universal to all asset classes, but when you're flying at cruising altitude and looking down, the market has steadily offered clients rate reductions in almost every geography and every asset class. Compared to 2023, the market has done a 180-degree turn as rates have steadily decreased month by month. The first half of the year saw rates average 5% to 12.5% down; in some cases, accounts have been completely restructured, which has allowed those buyers to see decreases well north of 25%. Don't be fooled: A plethora of flat renewals and even slight increases are being baked into the results of 2024, but flat to slightly down is easily the new norm.

One theme we've noticed is that many carriers are happy to walk away from accounts that either no longer fit their model or — if they wrote the deal last year opportunistically — don't seem to warrant a reduction. Many of the major carriers we trade with are doing the tango between being disciplined and still maintaining their ability to be market leaders. It's not an easy dance, but those that do it best seem to be rewarding their long-term partners, looking for the right new business to attack and walking away from accounts that would struggle to make a long-term return on deployed capital. I think carriers also have a lot of perspective about how much rate came back into the market the preceding five years, and data certainly demonstrates that carriers can afford to give back a few points and still have an adequately priced account on their books.

The Property Insurance Market for the Rest of 2024

As we look towards the end of 2024, the ocean waters in the Gulf have never been warmer, and all eyes are on how much the North Atlantic hurricane season will impact the road ahead. The prediction is that hurricanes will be active and even could break records.

Carriers struggled to make a meaningful profit for almost half a decade and then had record-breaking profits in 2023. Most industry professionals agree that one year of meaningful profit doesn't make up for several years of significant underwriting losses. As such, the market, while stable and competitive, is very fragile. Many insurance veterans feel that we're a major storm or CAT event away from reversing the current trend, and the outcome of this year's hurricane season is going to have a significant impact on how 2024 ends and 2025 begins.

If I had the gift of foresight, I would tell you exactly how things will unfold. But since nobody has that talent, here's a snapshot of what we at Risk Placement Services have seen thus far and how we think the road ahead will play out based asset class, geography and type of business.

Named Windstorm (NWS) CAT Aggregate in Florida and Tier 1 Wind

In 2023, this part of the country was one of the most challenging for getting the limit you needed at an affordable price. While still challenging, many carriers have restructured their reinsurance to allow them to deploy more capacity, and market supply has had a leveling effect on pricing.

A lot of risks still cannot buy the limit they desire, but many clients are increasing their NWS purchasing at a less cost than they paid last year for lower limits. In general, Florida and Tier 1 exposed businesses are seeing rate reductions in the 7.5% to 17.5% range with regularity, and the savings are being used to increase limits or improve terms and conditions that were taken away from buyers in previous market cycles.

Valuation Issues and Insurance to Value (ITV)

Valuation is the most interesting to us all. Replacement cost metrics were easily the number one factor that led to bad underwriting results, and proper valuations were the biggest talking point in the Property insurance marketplace for the last three years.

I'm a bit surprised that carriers have seemed to take their foot off the gas on pushing for more valuation adjustment, but 2024 has been relatively quiet with carriers not demanding more change. Part of the reason for a more relaxed approach is that many clients increased their values anywhere from 25% to 40% up over the past few renewal cycles, and many feel their values are at a level they can justify.

To be fair to carriers, valuation is still an area of concern, but one that continues to come up less as each renewal goes by. Most markets are happy to see a client make slight changes to properties that need tweaking versus universal valuation increases for every property on their schedule.

As the year continues to unfold, I would stress that clients should continue to take valuations seriously, but the feeling of being behind the eight ball no longer exists.

Wood-Frame Construction

We saw the wood-frame construction market start to make a turn during the latter half of 2023. 2024 has been more of the same, in that many carriers have stepped up with increased capacity and the desire to provide lead terms. We've seen a few carriers cut back this year and one market leave the space entirely, but by and large, this market segment is healthy, rates continue to be competitive, and clients have more options.

Global economic factors — primarily interest rates — have shelved a lot of projects, and market rate builders have slowed their activity significantly. A continuing uptick in adaptive reuse and renovation projects is challenging the market, because when it comes to wood-frame renovations, the market continues to be very limited, and rates are almost triple that of a new build project.

In general, wood frame construction rates are down 10% to 15% year over year for most projects (especially those in low-crime areas), and I expect rates to maintain their current levels for the foreseeable future.

CAT Aggregate for Earthquake (EQ)

The EQ market segment took a major hit in 2023, with the large institutional buyers seeing their limits cut back severely and their rates going up sharply. The middle-market segment remained in increase mode for most of 2023. But the EQ market is always more competitive than the Tier 1 Wind CAT market, and the EQ market has seen its competitive side come back quicker than other parts of the country.

Because the increases were not as drastic in the EQ market in the years leading up to 2023, the margin on the carrier side remained a bit higher, and rate reductions are trailing other geographies.

So far, rates on the EQ side of the house are down 2.5% to 10%, and I would expect that trend to continue.

Multi-family

The multi-family housing asset class is always a challenge that sees the most severe swings in rate change year over year. It's also an easy one for new entrants to the market to use to generate a significant amount of premium volume in a short time if they choose to be bullish on their loss expectations.

Leading up to 2024, this market had been hit the hardest as carriers aggressively raised rates, increased deductibles and trimmed line size. Many programs saw rates double over the course of five years, and that increase was almost always coupled with increased deductible levels. Some smaller property owners ran for management company programs and shared limits programs during this time, but even those vehicles had very limited ability to grow their customer base as a result of the restrictions carriers put on them. Add all of those factors together with the valuation issues that plagued this space, and what you had leading up to 2024 was some of the most challenging market conditions property owners had to deal with and hopefully will never have to deal with again.

All of the corrections carriers imposed on owners have created a very healthy environment that's spurred competition in this space in 2024. Rates are flat to down 20% depending on losses, geography, deductibles, CAT limits, etc. In a nutshell, clients whose losses are under control and who are with carriers that have had sustained and profitable partnerships should expect broadening of terms and conditions and reduced rates. Many carriers are getting increased margin clauses, blanket limits and more favorable deductibles for freeze and convective events, and are seeing rates drop. Clients hit with adverse losses are still seeing adjustments to their programs, but even those adjustments are averaging 5% to 7.5% up versus what would have looked like 20% to 30% the year prior.

Summing It All Up

As we look ahead, it would be foolish to assume that every account is seeing a rate reduction or enhanced coverage. I would go so far as to say that 2024 has a bit of an 80/20 rule, in that 80% of the business we've worked on thus far have seen results that are better than 2023 and are trending in the right direction for buyers. Those results are still poised to put carriers in a healthy position to make a long-term underwriting profit on most of their customers in 2024. The margin in these accounts should allow carriers to weather the storms even if the wind does blow a bit.

The remaining 20% of the deals are seeing challenging results and rate increases tied to poor loss performance and operating in areas where supply doesn't quite yet meet demand. Even if the hurricane season ends up being quiet or less impactful to the marketplace, I still think that carrier discipline will prevent the market from going into free-fall mode. It's important to remember that carriers are using artificial intelligence, better data, enhanced models and a lot of other tech-driven underwriting tools to help them determine what premium to charge for risks they want to keep and when It's best to walk away. The ability for carriers to hold the line and walk away when necessary should keep a full soft market at bay, but only time will tell.

I wish you all the best as the rest of the year unfolds and hope the year continues to be a good one for us all. The long-term health of the Property insurance market and the competitive environment we're enjoying this year is the result of carriers being in a position to grow. Another year or two of profits on the carrier side would go a long way towards ensuring things move in a positive direction for carriers and buyers alike for years to come.

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