Aon Global Market Insights Q1 2021 - assets.foleon.com

Aon Global Market Insights Q1 2021Insights from Aon’s thought leaders powered by proprietary data and cutting-edge data science

Contents

A View from the Top

Global Market Overview

Global Claims Trends

Global Reinsurance Trends

Global Health Trends

Global Investment Trends

Global Retirement Trends

Featured Differentiator

COVID-19

03

05

08

10

13

15

18

20

22

Geography Trends: North America

Geography Trends: EMEA

Geography Trends: Asia Pacific

Geography Trends: Latin America

Geography Trends: Global Broking Center

Key Aon Contacts

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A View from the Top

Events over the past year have catapulted Inclusion and Diversity (“I&D”) into the sights of employees, investors, organizations, consumers, and the board with a renewed urgency. As a result, there is also a sharper focus and heightened awareness that I&D should be managed within a broader human capital management strategy. Companies are pursuing their employee and board level journeys against a backdrop of stakeholder expectations. Aon is no different. As Chief People Officer, I am proud of the progress we are making internally around I&D, and the difference we are making in our clients’ I&D journeys.

Aon’s Chief People Officer, Lisa Stevens, shares her views on a key topic impacting the Q1 environment: Inclusion & Diversity

This quarter, I am pleased to have the opportunity to share with you my perspectives around the rapidly changing Inclusion & Diversity (I&D) landscape globally, and to describe some of the ways Aon’s strategy and actions have evolved in this important area that transcends so many facets of our organization, and society at large. Recent events have rightfully brought this topic to the forefront, and I am proud of the important work Aon is doing to lead change.

We have ingrained I&D into our culture and leadership approach and developed strategies to move beyond intentions and into definable and measurable programs and actions. We have built tools — such as the I&D metrics dashboard — to help our leaders identify where we need to improve and empowered them to implement change. We are transparently engaging with investors and regulators to demonstrate our proactive Human Capital Management approach as part of our broader Environmental, Social and Governance strategy. We are creating change within our own organization and supporting our clients in the development of their Human Capital Management and I&D strategies and governance.

A View from the Top

A key component of a successful I&D strategy is investing in a future workforce by developing a diverse talent pipeline and managing it transparently, which enriches company culture. I’m proud of the work we’re doing in this regard through Aon’s Apprenticeship Program — an alternative route into a permanent role that normally requires a specific degree or professional experience — by providing motivated, high-potential individuals with the required training (on the job and in the classroom), professional skills development, mentorship and experiential learning to bridge the gap. By removing some of the traditional barriers to entry-level employment, Aon contributes to local workforce development and cultivates talent within key metropolitan areas across the US, UK, Brazil and Ireland.

But I&D isn’t only a Human Capital Management journey. Legislation, regulation, and investor pressures are driving increased diversity in board composition — including gender, ethnicity, sexual orientation, and skills/experience — and increased transparency in director candidate pipeline and policies. With tightening investor and proxy advisory firm overboarding policies, it is becoming more important than ever to build a robust pipeline of diverse boardroom talent. Aon partners with companies to assess — through an annual board evaluation process or separate targeted studies — the skills and composition of their board relative to industry practice and external stakeholder policies. Beyond diversity in the boardroom, board oversight and accountability for company-wide employee I&D programs are an increasingly important part of company strategy and key to navigating external stakeholder demands.

There will continue to be an increased call for greater transparency and a stronger narrative on corporate and board level actions that progress the I&D strategy. Investors and other stakeholders generally recognize that I&D goals may take time to achieve, however, interim progress and continued quantitative and qualitative impacts is key to demonstrating commitment. Aon’s leading corporate governance expertise, coupled with our deep data and analytical solutions, ensures we will meet our firm’s commitments and enables us to support our clients on their journeys.

In this quarter’s report, you will read about how companies around the world are navigating the increasingly interdependent and complex economic, health, political, social, and risk environments. Inclusion and diversity sits at the forefront of these issues.

Lisa Stevens Chief People Officer



Navigating Today’s Environment: Solutions to Consider• Leveraging industry data and analytics, Aon develops portfolio solutions — like the

Aon Client Treaty — to help reduce volatility in rate and coverage and to harness market capacity for the benefit of clients.

• Through a collaboration with insurtech firm, Parsyl, Aon has introduced an innovative, transparent All-Risk Marine Cargo solution with temperature excursion coverage and a claims payment commitment, which leverages a combination of sensor data and analytics to report in real-time doses that fall outside the manufacturer’s temperature specifications while being transported or stored. This track-and-trace solution enhances risk management, informs logistics decisions when temperature excursions have been identified to minimize the risk of wasted vaccines, and enables timely claims payments.

• As organizations shift their focus from premium spend to Total Cost Of Risk (TCOR), tools such as Aon’s Risk Financing Decision Platform become evermore impactful in determining optimal program structure by using complex claims simulations to model potential outcomes. This allows organizations to better understand the benefits of retaining more to create savings while minimizing volatility.

Key ThemesThe market remains challenging; however, there are early signs that the pricing trajectory may be moderating as:

• Insurer growth goals have taken the place of a prolonged period of portfolio remediation.

• COVID-19 losses have not materialized as expected.

• New capacity continues to flow into the market.

As economies rebound in 2021 with the rollout of COVID-19 vaccines, traditional risk and exposure variables are likely to normalize while these key longer-term issues gain relevance in insurer appetite and rating models:

• Environmental, Social and Governance issues (i.e., Inclusion & Diversity, Climate Change).

• Supply chain resilience and the increased focus on local sourcing of strategically important manufacturing and goods.

• The increase in frequency and severity of weather related events.

• Special Purpose Acquisition Companies.


• Following a prolonged period of escalated pricing caused by myriad factors including rising loss costs and low interest rates, there are signs that more moderate conditions are emerging and are expected to continue throughout the year as new capacity flows in.

• Changes in insurer leadership have led to strategic and operational shifts. Notable observations include more rigorous and centralized underwriting, heightened claims scrutiny, and changes in appetite. Starting early and providing detailed information is more important than ever.

• While conditions remain challenging, there is a notable shift toward profitable growth and conditions are beginning to moderate in pockets.

• Underwriting and pricing is evolving. Pricing models such as pay-as-you-drive, pay-how-you drive, price-per-minute (or kilometer), etc. are becoming more common. Underwriters are becoming less flexible and risk management / control measures are often a prerequisite for offering favorable terms.

• Some insurers have rebalanced their portfolios and are looking to grow again while others continue to focus on remediation and a return to profitability. For some buyers perceived as more attractive to the market, a growing gap is starting to develop between renewal pricing from an incumbent insurer looking at portfolio remediation and a new insurer looking at the risk with fresh eyes.

• Newly proposed language related to silent cyber, infectious disease and contingent business interruption is at the heart of many negotiations, as questions arise related to specific language versus intent.

North America EMEA

Asia Pacific

Overall Conditions

Rates Capacity Insurer Attitudes

Limits Deductibles Coverages Reinsurance

Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Deductibles

Down

Flat

Up

Capacity

Abundant

Ample

Constrained

Reinsurance

Abundant

Ample

Tightening

Rates

Down

Flat

+1–10%

+11–30%

>+30%

Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Deductibles

Down

Flat

Up

Capacity

Abundant

Ample

Constrained

Reinsurance

Abundant

Ample

Tightening

Rates

Down

Flat

+1–10%

+11–30%

>+30%

Overall Conditions



Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Deductibles

Down

Flat

Up

Capacity

Abundant

Ample

Constrained

Reinsurance

Abundant

Ample

Tightening

Rates

Down

Flat

+1–10%

+11–30%

>+30%

• Uncertainty remains high due to continued increases in COVID-19 cases and restrictions, and the market remains challenged by ongoing insurer profitability issues. The local reinsurance market is rewriting some books of business which could further constrain capacity.

• The underwriting process is becoming more stringent and underwriter attitudes remain somewhat conservative. More risks are being referred to central teams, which is leading to delays and creating complexity.

Latin America

Overall Conditions



Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Deductibles

Down

Flat

Up

Capacity

Abundant

Ample

Constrained

Reinsurance

Abundant

Ample

Tightening

Rates

Down

Flat

+1–10%

+11–30%

>+30%

Overall Conditions



Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Deductibles

Down

Flat

Up

Capacity

Abundant

Ample

Constrained

Reinsurance

Abundant

Ample

Tightening

Rates

Down

Flat

+1–10%

+11–30%

>+30%


Claims Management & AdvocacyEach element of the claims process is important in securing appropriate outcomes for clients — from the initial report of loss, through the administration phase, quantification support, and ultimately the advocacy that may be required to bring about resolution. Information requests can be perceived as onerous, and timelines can become challenging. Communication amongst all parties is key, and the involvement of experienced advocates with technical, commercial and project management skill sets from the outset is becoming an absolute requirement in most lines of business, and in most geographies.

Relationships MatterTrust and integrity are as important in the claims arena as technical and legal expertise. Relationships that have been built over time have proven to be essential through the COVID period, with all stakeholders working in remote environments. The time to build a relationship is before the claim, not during a contentious situation. Aon’s connectivity with major insurers, adjusters and others is differentiating and is an essential contributor to the results we continue to deliver for clients.

Meaningful InsightsAon continues to focus on sharing claims performance insights with insurers to actively raise claim issues early and address emerging negative trends. Insurers who have managed the economics and staffing challenges related to COVID-19 have an opportunity to significantly outperform those who have struggled to adapt and respond, therefore reflecting a differentiated value to current and prospective insureds.

A Path ForwardRecognizing the difficulties that exist in the current claims environment, there are key pre-loss actions to counteract the most common concerns moving forward. They include reviewing policy wording for changes at renewal, asking brokers to implement claim coordination clauses / follow-the-leader clauses, considering claims performance when selecting insurers, ensuring awareness of the obligations in a claim situation, and taking an active role in the nomination of adjusters in first party lines.

Q1 2021 Trends

Co-insurer Interactions

Coverage Acceptance

Quantum Acceptance

Speed of Payment

Use of External Counsel

APAC

EMEA

LATAM

North America

Global Broking Center

Better

Same

Worse


Coverage Acceptance

Quantum Acceptance

Speed of Payment


APAC

EMEA

LATAM

North America


Better

Same

Worse


Global Reinsurance Trends While a number of regions / clients experienced loss in recent years and will see pricing move commensurate with those results, overall, the reinsurance market continued to have orderly renewals since the start of 2021. The primary theme of most renewals centered around contract terms, particularly for those that renewed prior to the height of the COVID-related contract negotiations in 2020. New capital coming into the market over the last year has helped to stem further dislocation, and reinsurers continue to evaluate new areas for growth, creating a strong offering for insurers.


0

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80

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 10-Year Avg. 10-Year Median

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Bn

(202

1)

Tropical Cyclone Severe Weather Flooding Earthquake EU Windstorm Drought Wildfire Winter Weather Other

Catastrophe Losses: Q1 Loss Driven by US Winter• Insurers faced nearly USD21 billion in natural disaster losses; the highest Q1 total

since 2011, 25 percent above the recent 10-year average (2011-2020) of USD16 billion, and 73 percent higher than the median of USD11 billion.

• More than 80 percent of the insured losses were sustained in the United States. The February Winter Storm insured loss estimates suggest a total of at least USD12 billion, most of which was attributed to impacts in the state of Texas. February 2021 marked the 19th coldest February on record in the contiguous U.S. dating to 1895, and the coldest since 1989.

• APAC incurred more than USD2 billion in insured losses. Much of the current total was attributed an offshore magnitude-7.3 earthquake on February 13. Per the General Insurance Association of Japan (GIAJ), more than 200,000 claims have been filed, with an expected insured loss tally to eventually exceed USD1 billion. Elsewhere in Asia-Pacific, a significant “East Coast Low” prompted major flooding across parts of New South Wales and Queensland in late March. Initial guidance from the Insurance Council of Australia (ICA) cited the value of filed claims reaching nearing AUD600 million (USD465 million).

• Europe recorded more than USD1 billion in industry losses. The continent endured an active windstorm season, though no event resulted in more than USD300 million in payouts. The closest was late January’s Windstorm Christoph (USD275 million).

Q1 Insured Losses by Year by Type

Source: Aon Reinsurance Solutions

Global Reinsurer Capital: Up Despite a Tough 2020• The reinsurance market is still well capitalized but is taking some loss from a

secondary peril (Winter Storm). Aon estimates that global reinsurer capital had increased to a new high of USD650 billion by the end of 2020 (up 4%), driven by continued capital market recovery, new equity issuance and US dollar depreciation.

• Retained earnings in the reinsurance sector were generally weak in 2020, driven by the impact of COVID-19 on both sides of the balance sheet, coupled with continued high frequency of natural catastrophe activity. However, traditional equity capital had already recovered to pre-pandemic levels by the end of September.

• Year-on-year increase of 4 percent was heavily influenced by depreciation of the US dollar in the fourth quarter, particularly against the Euro (the reporting currency of several large reinsurers). At constant exchange rates, underlying growth was closer to 1 percent, driven by unrealized gains on bonds (relating to reductions in interest rates), a decline in the amount of capital returned to investors (due to the uncertainty caused by the pandemic) and around USD15 billion of new equity issuance.


511 493 514 516 488 530 556

64 7281 89

9795

94

-2%+5% +2%

-3%+7%

575 565595 605

585625

650

0

100

200

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500

600

700

2014 2015 2016 2017 2018 2019 2020

USD

(b

illio

ns)

Traditional Capital Alternative Capital Global Reinsurer Capital

+4%

Global Reinsurer Capital

Sources: Company financial statements, Aon Business Intelligence, Aon Securities Inc.


The pandemic has accelerated organizations’ recognition of the importance of employee health and wellbeing on the success of their businesses. The concept of workforce resilience is not new, but it is undoubtedly enjoying a new vogue as the pandemic has forced organizations to focus on their key people-related risks, such as employee wellbeing, talent retention, implementing operational improvements and new, innovative working models and technology.

Social restrictions, remote working, and the impact of reduced physical activity, has raised awareness of issues like emotional and social wellbeing, but it is important that as we embrace what emerges next, the focus on employee health, safety and wellbeing is sustained.

Market DynamicsCountries continue to navigate different phases of COVID-19 and uncertainty remains regarding the impact on deferred medical treatments and long-term healthcare. From a pricing perspective, the most volatile line of business continues to be medical insurance. Aon’s research has confirmed that 2020 was an unprecedented year, with a widespread reported decrease in employer medical plan utilization as a result of the pandemic and related restrictions. In turn, Aon forecasts that 2021 will observe the lowest Global Average Medical Trend Rate recorded since our research began in 2013, despite expectations that plan utilization will return to more normal levels during 2021 as medical services begin to reopen.

While 2021 will record the lowest global Medical Trend Rate since our reporting began, we continue to see medical costs rising significantly above general inflation. Indeed, we anticipate continued medical plan cost escalation due to factors such as global population aging, overall declining health, poor lifestyle habits, and the increased prevalence of chronic conditions, as these continue to be global phenomena that are further exacerbated by the potential long-term health impacts of pandemic-related deferred treatments and routine checks.

2021 2020

Global Average Medical Trend Rate 1 7.2% 8.0%

North America Gross Medical Trend Rate 7.0% 6.4%

APAC Gross Medical Trend Rate 8.0% 8.7%

Europe Gross Medical Trend Rate 5.5% 5.7%

LATAM and Caribbean Gross Medical Trend Rate 8.8% 13.1%

Middle East & Africa Gross Medical Trend Rate 12% 12.2%


12021 Global Medical Trend Rates Report

People Risk and Claims Cost DriversTop conditions driving medical plan costs globally

• Cardiovascular

• Cancer/Tumor Growth

• High Blood Pressure/Hypertension

• Diabetes

• ENT/Lung Disorder Respiratory

Top global risk factors impacting adverse claims experience

• Physical Inactivity

• High Cholesterol

• Poor Stress Management

• Bad Nutrition

• High Blood Pressure

Employers have a crucial role to play in terms of helping employees understand their health risk, encouraging and supporting healthy lifestyle behaviors, and providing access to high-quality healthcare at the right time. Otherwise, they will continue to face the prospect of added organizational costs and employee productivity losses.

Future FocusInnovative organizations will continue to develop strategies to optimize the management of their medical and other health-related benefit spend, and virtual health will play a much more significant role. However, a more sustainable approach involves proactively addressing the root causes of the issue - the people risk element. Prior to the pandemic more progressive organizations had made the connection between a fit, healthy, engaged workforce and business results, and were not simply focused on managing cost.

The emerging trend of the pandemic should be to accelerate this focus to a new level, particularly as organizations figure out what their reshaped business models look like moving forward. In order to promote workforce durability, organizations need to continue to create an inclusive environment where every employee can have access to support across a range of wellbeing areas, such as physical, emotional, financial, social and work-life balance. Providing access to high quality health care treatment when needed, and supporting individuals with existing health conditions is important, however, it is imperative that there is increased focus on preventative measures and promoting a healthy workforce.

Global Reinsurer Capital

https://insights-north-america.aon.com/research/2021-global-medical-trend-rates-report?promo_name=CP-health-01-2020-10-05-2021-global-medical-trend-rates-report&promo_position=CP-health-01&_ga=2.233553564.347926140.1601878489-680414784.1588251437

Global Investment TrendsThe acceleration of COVID vaccination programs in the developed world, combined with easy monetary policy and more fiscal stimulus, is pushing GDP growth and inflation estimates higher. These changes are reverberating across global markets pushing global bond yields and equities higher.

MacroeconomicsCOVID-19 cases pressed higher and eclipsed the 100 million mark globally in January. By the end of the first quarter, recorded cases exceeded 127 million globally, with the U.S. accounting for 23.5% of cases. However, positive developments on the vaccine front have given rise to hopes of sustained economic re-openings, with multiple vaccines being approved in several countries and inoculations gaining traction. By the end of Q1, nearly a third of the US population had received at least one vaccination1. The vaccine rollout in Europe faced challenges, with several countries, including Germany, France, Italy, and Spain, suspending the Oxford/AstraZeneca distribution over concerns that the vaccine could cause blood clots, even as the highly transmissible UK variant continued to wreak havoc, forcing most major European countries to (re)impose strict lockdowns.

U.S. GDP moderated from the sharp rise seen in Q3 to 4% for Q4 of 2020 (annualized quarter-over-quarter) and remained down 2.5% year-over-year. In Europe, Germany’s economy grew by 0.1% in Q4 2020 while France contracted by 1.3% over the same period. China showed considerable economic strength, reporting GDP of 6.5% in Q4 of 2020; China was the only major economy in the world to record positive economic growth with GDP of 2.3% reported for the year.

As economic conditions are generally improving in 2021 bond yields have substantially risen globally. The long-dated government bond yields of the U.S. and Eurozone increased sharply mid-quarter due to higher reflation expectations and continued to climb throughout March, albeit at a slower pace. The 10-year U.S. treasury yield increased 82 basis points over the quarter to 1.74%.

1Ourworldindata.org


Politically, the start of the year for the US was marked by an insurrection at Capitol Hill and the second impeachment trial of former President Trump. However, heightened levels of uncertainty were quenched as Joe Biden was sworn in as the 46th President of the United States and Democrat wins in both Senate runoff elections in Georgia were confirmed. Another $1.9 Trillion stimulus package was passed in the U.S., providing direct payments to Americans, per qualifying levels of income, and extending the federal emergency unemployment benefits program. At the end of the quarter, the Biden administration announced plans for over $2 Trillion in infrastructure spending. While legislative language has not yet been proposed, the outline covers a wide swath of rebuilding projects for neglected structures, such as highways, bridges, and schools, and is calling for initial investment in more progressive themes such as electric vehicles. Another bill focusing more on social issues is expected to be revealed during the second quarter.

Elsewhere, former president of the European Central Bank, Mario Draghi, was sworn in as the 30th Italian prime minister following the failure of negotiations to rebuild a coalition government led by Giuseppe Conte. In the UK, chancellor Rishi Sunak announced a £65bn “spend now, tax later” UK budget to support the economy amid the ongoing pandemic, with a substantial focus on business investment over the next two years. Trade tensions with China escalated throughout the quarter, with the first fray instigated by former President Trump’s ban on various Chinese payment and software. Later in the quarter, the EU, US, UK and Canada imposed sanctions for human rights violations on four Chinese officials and a security organization over the treatment of Uyghur Muslims in the Xinjiang region.

Monetary PolicyMonetary policy among major central banks remained accommodative, as the U.S. Federal Reserve (Fed), European Central Bank (ECB), and Bank of Japan (BOJ) kept their policy rates unchanged. The Fed also held to its current pace of asset purchases, while the ECB expanded its bond purchasing program to help curtail negative impacts to economic growth from the rise in bond yields. However, the first sign of possible future monetary policy divergences among developed countries came from the BOJ, which removed its commitment to buy ¥6 Trillion in exchange-traded funds (annually). While the Fed has not expressed concerns over higher bond yields and inflation, it did revise its 2021 growth forecast to 6.5% from 4.2%.

EquitiesGlobal equities ended the quarter higher, backed by further stimulus and positive vaccines developments. The MSCI All Country World Index returned 4.7% for the quarter and 55.3% over the trailing twelve months. The sector rotation into cyclicals continued and value fared better than growth during the quarter. The MSCI All Country World Value Index returned 9.0% and the MSCI All Country World Growth Index returned 0.3%. Over the trailing twelve months, growth has still outperformed value (41.7% to 37.8%), although the margin has narrowed substantially. International equities were positive for the quarter, with the MSCI EAFE up 3.6% and the MSCI Emerging Markets Index up 2.9% but underperformed the US. The S&P500 finished the quarter up 6.2%, bolstered by strong quarterly returns from the Energy (30.9%) and Financials (16.0%) sectors. Within U.S. equities, small caps continued to outperform large cap markets. We continue to prefer equities to government bonds and credit.

http://Ourworldindata.org


Government Bond & YieldsTreasury yields rose across the curve, driven higher by inflation expectations. The largest moves in the Treasury curve were seen in the longer tenors. The 10-year U.S. treasury yield increased 82 basis points over the quarter to 1.74% and the 30-year U.S. treasury yield rose to 2.41%, up 76 basis points during the quarter. However, the 5-year U.S. treasury yield had a sizable increase of 56 basis points and closed the quarter at 0.92%, while the 2-year U.S. treasury yield was largely unchanged. While the rise in yields does improve potential return prospects, we must remember that yields remain low, and that we believe as the world reopens the risks are skewed to higher rather than lower yields. This leads us to believe that returns from government bonds will continue to be hamstrung going forward.

CreditCredit markets paused from their recent upward trend and ended the quarter in negative territory. The Barclays Global Credit Index returned -3.7% during the quarter and 8.2% over the trailing twelve months. The Barclays Global High Yield Index returned -1.0% for the quarter and 19.5% over the trailing twelve months. We continue to believe that credit is expensive, and that returns will be hampered by low outright yields and compressed credit spreads, rather than a turn in credit conditions.

Market data source FactSet The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

CommoditiesCommodities had a strong quarter as the S&P GSCI Commodity Index returned13.5%. Energy and industrial metals were the main beneficiaries of the reflation theme. WTI crude prices rose 21.9% to $59/barrel at quarter end. The U.S. Dollar appreciated against the Euro, Yen, and Australian Dollar, but depreciated against the Canadian Dollar and Sterling. We no longer expect Dollar weakness to continue into 2021 given US growth upgrades and the larger rise in interest rates relative to other regions. However, mild dollar weakness should resume in 2022. Gold prices fell over the quarter, with the spot price down over 10% to $1,691/oz.

Past performance is no guarantee of future results. Indices cannot be invested in directly. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect fees or expenses.

Q1 2021 Performance Summary

6.2%

12.7%

3.6%

7.7%

2.3%

-3.4%

6.0% 6.9%

S&P 500 Russell 2000 MSCI EAFE $ MSCI EAFE (Local Currency)

MSCI Emerging Markets $

Bloomberg Barclays US Aggregate

Hedge Funds (HFRI)

Bloomberg Commodity Index

Global Retirement TrendsAt the end of 2020, global corporate pension liabilities reached a record year-end total of USD 8 trillion; however, 2020 also saw a record USD120 billion of single-premium pension risk transfer transactions. This record-breaking year was the result of myriad factors including strong asset performance leading to improved funding levels, competitive pricing, keen employer and fiduciary/trustee board interest for removal of risks, and significant (re)insurance market appetite.

A key area of focus is the challenges faced by employers globally in funding their pension plans in the wake of the COVID-19 pandemic. Governments are enacting legislation to provide relief given the importance of retirement plans to support employee retirement outcomes. As one example (see next page), the American Rescue Plan Act of 2021 includes funding relief provisions for U.S. single and multi-employer pensions. The Canadian Federal Budget release on April 19, and European relief packages, have looked to provide pension support as well. It is critical for organizations to understand these provisions and their implications.

The American Rescue Plan Act of 2021: Observations and Implications for Single and Multi-Employer PlansThe American Rescue Plan (H.R. 1319), was signed by President Biden on March 11, 2021. This bill includes pension funding provisions impacting both single employer and multiemployer plans. Plan sponsors are encouraged to consult with their actuarial contacts for specific guidance, but at a high level here are 5 takeaways to consider for each type of pension plan:

Global Retirement Trends

Single employer observations and implications

• The single employer relief includes an extension of interest rate stabilization and shortfall amortization periods. Certain aspects of this relief are permanent and will have a longer-term impact on funding requirements.

• Plan sponsors have multiple options for when these provisions can take effect. The extension of interest rate stabilization is effective in 2020 by default, but it can be deferred to as late as 2022. The extension of shortfall amortizations is effective in 2022 by default, but it can be applied as early as 2019.

• The optimal effective dates for a plan sponsor will depend on plan-specific and sponsor-specific factors. For very underfunded plans, earlier application may result in the greatest reduction in contributions; for moderately well-funded plans, the situation may be more complex. Detailed analysis will be needed to facilitate informed decision-making.

• Decreased interest rate sensitivity of liabilities may have implications for de-risking glide-paths, making hedge path strategies more compelling in a low interest rate environment. In addition, since the new rules reduce contributions, they may slow de-risking progress for plan sponsors taking advantage of the relief. This could lengthen their time horizon for investing and make illiquid and return-seeking assets more attractive.

• The funding relief does not change PBGC premium rates for single employer plans. Employers taking advantage of lower minimum required contributions may face higher variable-rate premiums unless they are at the variable-rate premium cap. This may lead more sponsors to consider contribution strategies other than the minimum. Pension settlement strategies via lump sums and annuity purchases also remain attractive, especially for plans at the cap.

Multiemployer observations and implications

• The multiemployer relief includes changes to reduce minimum contribution requirements in the near term (though this may not translate to contribution reductions for participating employers), a new program to provide assistance to financially troubled plans through 2051, and increased PBGC premiums starting in 2031.

• The financial assistance is funded by a transfer of Federal revenues and does not need to be repaid.

• Many details of how this program will work remain to be clarified through PBGC guidance. Since the financial assistance does not cover benefits payable after 2051, further action may be needed in the future if a troubled plan’s financial status does not substantially improve in the interim. The legislation does not include fundamental reform of multiemployer plan funding requirements, so plans’ financial conditions could deteriorate in the future

• Contributing employers may want to assess the potential change in their risk exposure as a result of the legislation.

• Companies that were looking to exit a multiemployer plan prior to its projected insolvency, or to avoid potential exposure to mass withdrawal liability, may now have more runway if a plan is eligible for financial assistance.

Aon retirement consultants globally are available to provide guidance on recent regulatory changes and provisions for pensions. Please contact your Aon team to learn more.

https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319eas.pdf


Recognizing that Inclusion & Diversity cannot sit solely within an organization’s people team, Aon takes a dual-track approach to Inclusion & Diversity by working with clients to address this topic at both the employee and board level, supporting decisions with our deep data, analytics, and governance expertise.

Aon Inclusion and Diversity SupportLeveraging our expansive team of experienced professionals — including former Institutional Shareholder Services and Glass Lewis leaders — as well as our legal and regulatory corporate governance professionals, Aon partners with public and private companies across the globe to help them navigate their governance risks, taking a balanced and holistic approach that considers not only business goals and strategies but also external industry data, standards, and emerging trends. A key, growing risk relates to the increasing demand for greater transparency and a stronger narrative on corporate and board level actions that progress the I&D strategy. Aon takes a dual-track approach with companies to address this topic at both the board and employee level, and to develop recommendations that are based on robust data, analytics, and governance expertise.

How should Inclusion & Diversity (I&D) be addressed within the boardroom?Increasingly, boards are being pressured to navigate their own I&D journey by first looking inward, before looking at the broader workforce. Boards, just like companies, are unique. Establishing goals, recognizing where you are on the I&D journey, devising a plan to improve diversity through clear steps over a reasonable amount of time, and then communicating that plan clearly to stakeholders is paramount, and Aon can help, regardless of board size, industry or I&D maturity. By understanding how to navigate and balance the multiple external factors that apply to board diversity and performance, including investor perspectives, listing exchange requirements, and growing regulations, Aon professionals help boards sort through and prioritize short and long-term action items. We assist with board composition and skills assessments, board and committee performance evaluations, as well as with board diversity policy creation and implementation.


What level of oversight should exist, both for the board and c-suite? There is a growing need and expectation for the board and the C-suite to be knowledgeable on human capital-related topics, such as I&D initiatives and goals for the broader workforce. This includes understanding evolving stakeholder (e.g., employees, shareholders, activists, media, and regulators) expectations and the related risks. Aon helps companies navigate these risks through tailored board and C-suite level education sessions which provide real time intelligence on key I&D trends including those related to oversight, disclosure, peer metrics and goals, litigation risks, and emerging best practices. Many organizations need help implementing targeted changes, including establishing a timeline and milestones, assigning accountability, and tracking progress. Aon’s support includes developing tailored I&D dashboards for companies to capture timelines, goals, and progress and efficiently provide visibility to the board and management on a regular cadence.

Want to learn more? As the role of the Director continues to evolve, risks related to Inclusion & Diversity, ESG, Cyber, Climate Change and other macro-level issues will continue to evolve as well. Aon is positioned to inform client strategies, help them develop plans for change, and support their plan execution, including managing internal and external expectations. Visit Aon’s Boardroom Insights Center or contact your Aon Team to learn more about how Aon can help.

COVID-19

With continuous growth in global trade and interconnectivity, it is clear that we can only transition to a new normal together. Virus spread — including new variants — is not contained by geographic borders. We can only gain control of our destiny through a concerted vaccination effort in every part of the world. Approaches and priorities differ, but one theme is prevalent: Vaccine rollouts must accelerate for people to return to health, for employees to return to work, and for businesses to reopen, causing uncertainty to give way to increased business and consumer confidence, and uninterrupted global supply chains to resume.

Lessons Learned from the Pandemic• Put people first.

• Purpose and social responsibility are key.

• Leadership must be front and center.

• Communicate, communicate, communicate.

• Agility is critical.

• Wellbeing matters.

• It takes a village.

COVID-19

How the World Looks at the Conclusion of Q1The World Health Organization (WHO), Centers for Disease Control and Prevention (CDC) and other public health organizations agree that COVID-19 Vaccination is the path forward out of the pandemic. With more than 1.08 Billion doses administered across 172 countries as of April 28 20211, the world has administered enough doses to fully vaccinate 7.1% of the global population — the world still has a long way to go.

While the U.S. and some other countries have launched vaccination campaigns that have progressed well in Q1 2021, other countries have struggled with access to vaccines, public health infrastructure fragility and myriad other challenges. Given how interconnected COVID-19 has shown the world to be as respects travel, trade, supply chain risk, and health, financial, and economic impacts, no country is truly safe until every country is safe. We’re all in this together, and we have an opportunity to work better together to move to the other side of this pandemic. This is where public/private partnership cooperation can help accelerate the pace, and where the role of employers can become more prominent as part of the solution.

Aon’s efforts in Q1 focused on the following areas:

• Monitoring & Responding to New Developments: What We’re Watching Now.

• COVID-19 Vaccination Consulting Services for Clients.

• Solutions to the Challenges of Managing a Partially Vaccinated Workforce.

• Understanding COVID Long-haulers: What Employers Need to Know.

• Product Innovation Example: Marine Cargo Track-and-Trace Solution for COVID-19 Vaccine Shipments.

• Solution Innovation Example: Resiliency Assessment.

Continue reading for more information about each of these topics.

Monitoring & Responding to New Developments: What We’re Watching NowThe following are examples of developments that could alter the timing of recovery (either positively or negatively) as the world seeks to bring the pandemic to a close:

• India’s COVID-19 crisis situation, as well as other hot spots such as Brazil and Mexico.

• New learnings related to Long-Haulers.

• The spread of variants.

• Vaccine supplies, distribution and equity considerations.

• Challenges faced by multinational organizations with employee footprints that span more than one country.

COVID-19 Vaccination Consulting Services for ClientsAon provides COVID-19 vaccination consulting services and solutions globally. While services are customized to a client’s specific needs and employee footprint, they fall into four general categories:

• Thought Leadership and Situation Awareness.

• Planning - tactical framework and logistics assessments based on country/jurisdiction.

• Communications — Assisting in the development of communications strategies. Given the trust that employees have in their employer, employers can play a key role in addressing timely vaccine information and helping employees overcome vaccine hesitancy.

• Execution — In addition to the role of public health and other governmental agencies, many countries allow employers to also play a role. Where it is possible for an employer to do so, we can assist the employer in facilitating execution.

COVID-19

Solutions to the Challenges of Managing a Partially Vaccinated WorkforceWhile the vaccination rollout is underway, many employers are planning a return to the workplace with an approach that may vary by country (and by jurisdiction within a country), depending on how infection rates are evolving and vaccination rates are progressing. Issues employers face revolve around the challenges of managing a partially vaccinated workforce and include, but are not limited to, questions like these:

• Should vaccinated employees still be required to:

� Wear masks? Socially distance?

� Be restricted in movements and interactions at the worksite?

• Should non-vaccinated employees:

� Have access to on-site facilities (cafeteria, gym)?

� Wear masks? Work from home?

� Access the building without COVID-19 testing?

• Will proof of recent recovery from COVID-19 be acceptable in lieu of vaccination?

• What is the impact on employee relations?

� Incentive to get vaccinated?

� Or resentment of co-workers?

• What are the legal issues?

� Disparate impact on minority employees?

� Privacy concerns?

• What are the implications for Facilities, Human Resources, Health & Welfare Plans and other Benefit Programs, Risk Management, (Re)Insurance, Retirement Plans, Investment Plans, other Financial/Operational considerations, ESG planning, etc.?

Many regulatory, legal, and other factors will impact the answers to these questions. To help employers with a U.S. footprint work through these questions and plan for the challenges and opportunities the vaccination pathway holds, in Q1, Aon’s Global COVID-19 Task Force conducted a COVID-19 Vaccination Webinar series. The webinars are recorded for on-demand replay at aon.com/coronavirus.

Links to Aon WebinarsInstallment One: New Dawn in COVID-19 Vaccination, Biden Administration Actions and Implications for Distribution New Dawn in COVID-19 Vaccination

Installment Two: Tactical and Logistical Planning for COVID-19 Vaccinations

Installment Three: Managing a Partially Vaccinated Workforce Managing a Partially Vaccinated Workforce

Installment Four: Planning for Return to Travel and Convening

Installment Five: Preparing for Future Risks and Reshaping the Workforce of the Future

http://aon.com/coronavirus

https://www.aon.com/getmedia/733189b7-f00c-479c-9231-50ee0822ea3c/New-Dawn-in-COVID-19-Vaccination-Webinar-FAQ.aspx

https://www.aon.com/getmedia/733189b7-f00c-479c-9231-50ee0822ea3c/New-Dawn-in-COVID-19-Vaccination-Webinar-FAQ.aspx

https://www.aon.com/getmedia/0d6d2bb7-37bf-4642-9818-0a49dd043a44/Tactical-and-Logistical-Planning-for-COVID-19-Vaccinations-Webinar-FAQ.aspx

https://www.aon.com/getmedia/fa589520-2634-4034-ae5c-8a67e8a578f5/Managing-a-Partially-Vaccinated-Workforce-Webinar-FAQ.aspx

https://www.aon.com/getmedia/fa589520-2634-4034-ae5c-8a67e8a578f5/Managing-a-Partially-Vaccinated-Workforce-Webinar-FAQ.aspx

https://insights-north-america.aon.com/events-webinars/aon-planning-for-return-to-travel-and-convening-webinar?_ga=2.130720143.1823245846.1619974714-1935037095.1608655024

https://insights-north-america.aon.com/events-webinars/aon-planning-for-return-to-travel-and-convening-webinar?_ga=2.130720143.1823245846.1619974714-1935037095.1608655024

COVID-19

Understanding COVID Long-haulers: What Employers Need to KnowAs the COVID-19 pandemic continues to unfold globally, reports are emerging of some COVID-19 survivors experiencing longer-term symptoms (lasting more than 3 months) and/or experiencing new neurological symptoms after the acute COVID-19 illness has passed. While extensive scientific research has been ongoing throughout the pandemic as it relates to prevention, risk reduction and treatment of COVID-19, more focus is now being directed toward better understanding the long-term health impacts of this disease and how to treat those who are suffering longer-term symptoms. Aon’s special report “Supporting COVID-19 Long Haulers: Anticipating the Needs of Employees in Response to COVID-19” helps employers better understand what is currently known about this condition and the actions they can take to support an employee who is suffering lingering symptoms and/or caring for a family member who is.

Product Innovation Example: Marine Cargo Track-and-Trace Solution for COVID-19 Vaccine ShipmentsTo support the roll-out of the global vaccine program, Aon has developed an innovative Cargo Track-and-Trace Solution, which delivers timely and transparent insurance coverage for COVID-19 vaccine shipments through a combination of sensor data and analytics. The offering delivers enhanced All-Risk Marine Cargo insurance coverage, with timely payment for doses that fall outside of the temperature specifications while being transported or stored, enabling more effective risk management and claims support. Real-time reporting of any temperature deviation will support the proactive mitigation of future losses and maximize the number of doses administered.

Key Features:

• Up to USD 75 million of coverage, provided by participating insurers, with sub-limits for specific modes of conveyance.

• All-risk cargo insurance coverage with the enhanced temperature deviation coverage.

• 30-day payment commitment in the event of a verified temperature deviation loss, up to USD 10 million.

• Coverage available on a global basis, where approved.

• Available to all parties in the vaccine supply chain, including pharmaceutical firms, government bodies, transportation and logistics companies, distributors, health systems, pharmacy chains and inoculation centers globally.

Aon pledge as respects this Track-and-Trace Solution for COVID-19 Vaccine Shipments: As part of our ongoing efforts to support the global vaccination program, Aon is donating 100% of all Aon revenues earned from this solution in 2021 to a charity dedicated to eradicating the global human and economic toll of the pandemic.

Please see our press release.

Solution Innovation Example: Resiliency AssessmentThe Aon Resiliency Assessment is designed to evaluate all aspects of an organization’s response to COVID-19, covering 17 areas across risk and human resources. Originally designed as a return-to-work readiness tool, the assessment has been redesigned with a “Future of Work” perspective. Organizations use an electronic survey to record their responses to 130 questions; Aon evaluates the responses and prepares a robust and thorough report which includes a set of recommendations.

The results are reviewed in a debrief meeting with Aon key subject matter experts on topics such as:

• The future of work.

• The future of benefits.

• Other areas that the organization’s scores indicated should be discussed further.

In addition to a discussion of the organization’s specific responses, the meeting agenda also includes a review of trends that Aon has seen throughout the assessment process.

Whether the organization is evaluating their COVID-19 related changes already made, determining whether to make those changes permanent, or pausing to re-evaluate a virtual identity and changing real estate footprint, the Resiliency Assessment can meet them where they are in the process. By partnering the right Aon subject matter expert with the client at the right time, Aon can help clients seeking to return their employees to the workplace safely with an eye toward the future.

https://www.aon.com/getmedia/43a92675-d321-4f58-85a0-1abf010fd2e3/Supporting-COVID-19-Long-Haulers.aspx

https://www.aon.com/getmedia/43a92675-d321-4f58-85a0-1abf010fd2e3/Supporting-COVID-19-Long-Haulers.aspx

https://aon.mediaroom.com/2021-04-13-Aon-Launches-Innovative-Industry-Collaboration-to-Protect-Global-COVID-19-Vaccine-Shipments

Charting the Course to the New Better: Preparing for the next “Grey Swan” event

“Today, clients are justifiably focused on the unprecedented socioeconomic impact of the COVID-19 pandemic, but they are also increasingly aware of other challenges like climate change, supply chain disruption, reimagining and configuring how and where work gets done, and the growing health-wealth gap,” said Greg Case, Chief Executive Officer of Aon. “If, and when, a reputation crisis occurs, this research reinforces the importance of promptly acknowledging the seriousness of the event itself but, most importantly, how to translate this understanding into decisive action.“

Greg CaseChief Executive Officer of Aon

Like their better-known “Black Swan’’ event cousins, “Grey Swan’’ events can greatly impact firms; but unlike Black Swans, which seem inconceivable before they happen, Grey Swans are known beforehand. They are long-tail risks, known but thought unlikely — and thus firms have often neglected to invest resources to prepare for them. Aon has collaborated with Pentland Analytics to produce the report,

“Respecting the Grey Swan.” The report details the impact crises have on reputation and shareholder value and emphasizes the need for organizations to recalibrate their approach to risk and crisis in a highly volatile world.

The report highlights that Grey Swans require focused attention toward:

• Reimagining the risk landscape through a broader risk assessment.

• Acknowledging the seriousness of impact with a focused investment in risk preparedness and crisis management.

• Translating understanding into action, fostering a responsive and agile culture.

COVID-19

Unprecedented, Unimagined Conceivable but neglected Base Case

Extremely rare, massive impact Unlikely, major impact “Normal” expectations

No data unpredictable Limited data patterns and insight Lots of data predictable

Hedge / Insure Build Resilience Prevent

Contact your Aon Team to learn more about Aon’s industry-specific solutions:

• Pre-loss consulting services.

• Post-loss claims advocacy.

• Risk transfer solutions.

https://www.pentlandanalytics.com

https://www.aon.com/reputation-risk-report-respecting-grey-swan/index.html

Geography Trends:North America

It’s a race against time as the public health crisis continues. COVID-19 vaccine eligibility expanded notably over the quarter; however, the virus is mutating, and variants are spreading. Despite ongoing health concerns, there is general optimism, and economic conditions are strengthening, as interest rates remain near zero with no meaningful hikes expected. Multiple massive US economic stimulus bills — including the latest $1.9 trillion package in March — are creating positive impacts not only for hundreds of millions of direct US recipients but also for the North American and global economy at large. Strong performing sectors include Autos, Basic Materials, Finance, Retail, Construction, Industrial Products, Technology, and Medical.

The new US Administration is experiencing concurrent challenges related to the humanitarian crisis at the US-Mexico border, the re-evaluation of long-standing state voting processes and rights, gun control in the face of repeated mass shootings, and Senate gridlock that is leading to scrutiny of the filibuster.

North America: Regional Landscape

In Canada, the public health crisis has necessitated renewed regional shutdowns and curfews, international uncertainty remains high, protectionist trends continue to weigh on the prospects for Canada’s export-oriented economy, and the domestic political fight over carbon taxes and climate change continues.

Across the region, tensions related to inequality and racial discrimination remain high, although a recent court verdict in a high-profile murder trial related to a tragedy that kicked off months of protests in 2020 was broadly perceived as an important and necessary step toward police accountability for racial injustices. International Women’s Month garnered more attention than ever, and this year’s theme #choosetochallenge was widely celebrated.

Insurance Market & Key Risks Pricing increases continue The US market is now experiencing the 12th to 13th consecutive quarter of premium increase, while Canada is seeing its 7th to 8th consecutive quarter, for many product lines (e.g., Property, Financial lines, and Umbrella / Excess Casualty), meaning insureds have now experienced rate-on-rate renewals for up to four cycles. Despite this, pricing remains below the high-water mark seen at the peak of the last hard market. Drivers of the prolonged upward pricing environment include escalating loss costs and low interest rates.

Price increases have crept into areas previously less challenged The few lines of business that had not experienced consistent, significant price increases like Workers Compensation, Cyber and Professions (namely, Lawyers & Accountants) are now also starting to experience notable upward pricing trends. Cyber, in particular, with increasing risk profiles (e.g., ransomware) as well as rising frequency and severity of claims, is starting to see significant spikes.

All options are on the table Insureds continue to explore any and all options including self-insurance, creation or expanded use of wholly owned captives or non-owned captives, alternative products, alternative sources of capital, and changing insurance program architecture (e.g., higher deductibles).

Stabilization is on the horizon New capacity — potentially in the $20 billion range between insurance and reinsurance — is entering the market. As more capital is deployed during the course of the year and pricing adequacy is reached in some spaces, a shift in market conditions may begin to occur.

Claims Environment Insurer views differ The property claims process has become especially challenging when insurers on shared programs take different coverage positions despite the use of consistent wording.

Defense counsel interactions are problematic Friction continues between insurers and insureds on the selection of defense counsel and payment of defense counsel rates/bills as well as on litigation strategy decisions, settlement valuation, and requests for settlement authority and funding.

Losses remain high Claims frequency and severity remains high, driven largely by:

• Social inflation / nuclear verdicts — exacerbated by the current socio-political environment.

• Natural catastrophes — including the February storm that swept the US.

• Major ransomware / extortion events.

• Continued COVID impacts and supply chain disruption.

There is lack of clarity on Cyber coverage triggers As ransomware claims increase in frequency and severity, insurers are spending a great deal of time especially on the business interruption portions of the claims. Requests are perceived as extra-invasive, as the trigger of coverage is not as clear as, for example, a Property claim might be.

Tips for Clients Think big picture If the net present value of transferring the risk is greater than zero - buy the insurance. Avoid getting caught up in year-over-year percentage increases; often, insurance is still the best option despite the (increasing) cost.

Find common ground Describe your short- and long-term objectives and priorities in detail for Aon and insurers. Partner with insurers to understand their strategies and goals as well.

Broaden the team In addition to partnering with underwriting teams, maintain lines of communication with insurer claims teams.

Develop a robust renewal strategy Be proactive and start early so you have greater control over the process. Describe in detail how you are addressing COVID-related risks. Leverage analytical tools like risk modeling to inform your discussions with insurers.

North America: Market Overview

Overall Conditions



North America

Canada

United States

Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Rates

Down

Flat

+1–10%

+11–30%

>+30%

Deductibles

Down

Flat

Up

Capacity

Abundant

Ample

Constrained

Reinsurance

Abundant

Ample

Tightening

Coinsurer Interactions

Coverage Acceptance (Speed)

Quantum Acceptance

Speed of Payment


North America

Canada

United States

Better

Same

Worse



Quantum Acceptance

Speed of Payment


North America

Canada

United States

Better

Same

Worse

North America: Q1 2021 Market and Claims Dynamics

Market Dynamics Claims Dynamics

North America: Q1 2021 Rate Trends

Aviation Business and Personal Services

Construction Energy Entertainment and Leisure

Financial Institutions

Food System, Agribusiness and Beverage

Healthcare Services

Manufacturing Marine Pharmaceutical and Chemicals

Power Professions Public Sector Real Estate Retail and Wholesale Trade

Technology and Communications

Transportation and Logistics

All Products

Automobile

Aviation

Casualty/Liability

Construction

Crisis Management

Cyber

Employers Liability/Workers Compensation

Environmental

Financial Lines

Marine

Products Liability

Professional Indemnity

Property

Surety

Trade Credit

Down Flat +1–10% +11–30% >+30% N/A





Healthcare Services





All Products

Automobile

Aviation

Casualty/Liability

Construction

Crisis Management

Cyber


Environmental

Financial Lines

Marine

Products Liability


Property

Surety

Trade Credit

Down Flat +1–10% +11–30% >+30% N/A

Industry Issues While labor, site-access, and supply chains were initially disrupted during COVID-19, contractors adapted, and most projects and operations either continued with modest disruption and/or have now resumed. As project backlogs were based on a strong, pre-COVID economic landscape, there remains a pipeline of work and a highly competitive bidding environment. Some segments have been more negatively impacted by the pandemic than others, namely the hospitality, gaming, office development, and retail, though hospitality will likely rebound the 2nd half of 2021 and beyond. On the other hand, segments like life science/healthcare/pharma, logistics/distribution and data centers are highly vibrant. Contractors across North America are watching with a keen eye toward infrastructure stimulus efforts in the U.S. and Canada.

Market Conditions Market conditions remain challenging; appetite is focused and pricing remains elevated, particularly for D&O, Professional Indemnity, Excess Casualty, and Property/Builder’s Risk (especially, frame construction). While there is ample capacity for most risks, high liability-related risks like residential construction, New York construction, and wildfire can be extremely challenging to find sufficient capacity for. Excess of Wrap-up coverage has become more closely scrutinized by underwriters, with some insurers setting high minimum attachments or becoming less willing to provide coverage. There is a trend toward internal underwriting escalation / referrals which has led to quote and approval delays and a generally more conservative underwriting environment. Project extensions, both on Casualty and Builder’s Risk, are frequent pain points, particularly with insurers whose underwriting appetite has changed since project inception. Insurers are transitioning away from manuscript policy wording to their own, standard wording. A general deterioration in contractor credit quality has led to Trade Credit rate increases, and collateral requirements have notably increased. In the claims arena, insurers appear to be scrutinizing every detail before issuing a coverage position and/or claims payment. Liability insurers remain concerned about escalating claims frequency and severity stemming largely from social inflation and nuclear verdicts, while Builder’s Risk insurers are dealing with outsized loss results from fire and water intrusion. Aon is working with insureds to start the Property and Casualty renewal process as early as possible to ensure risk mitigation efforts and other detailed risk information is shared early to achieve the best possible outcomes.

A Look Ahead Residential, institutional, and industrial & infrastructure projects are expected to contribute to continued strong construction industry performance, as investment accelerates and an estimated 430,000 new construction-related jobs are filled in 2021. The insurance market is expected to remain challenging, but will likely stabilize later in the year when new capital emerges, offering capacity alternatives. Deductibles — especially for water — will come under greater pressure and project loss prevention is expected to become a higher priority for insureds. More insurers are exploring, and in some cases funding or co-funding, the utilization of water sensors/mitigation, video/camera and wearable technologies in an effort to improve loss outcomes. These practices are expected to gain strong momentum in the year ahead. There is emerging evidence of some moderation — but not a softening of the market — on rate change in both Casualty and Builder’s Risk.

North America: Featured Industry — Construction

A Look Ahead While insurers have been addressing profitability issues for several cycles, their focus is now shifting toward growth. This is expected to create a more moderate — although still upward — pricing environment. Underwriters will also likely become more flexible, although referral underwriting will remain common. Primary limits will continue to shift downward, pressuring attachment points and creating a greater need for reinsurance.

Industry Issues Initially, manufacturers were expected to rebound strongly from the challenges of 2020, when operating plants were disrupted by myriad factors, including COVID-related workforce issues and dampened downstream demand from industrial customers who were also experiencing COVID impacts. At the outset of 2021, most factories restarted at moderate to full capacity as the economy rebounded and began to catch up on lost production. However, momentum stalled, production slowed down, and plants idled when many manufacturers experienced significant supply chain delays stemming from the global semiconductor shortage, COVID-related re-staffing and local labor shortages, the severe winter storm’s impact on chemical and plastic supply, and marine shipment delays from the Suez Canal blockage. The chip shortage, in particular, hit the Automotive Industry hard, and delays are expected to continue through the summer.

Market Conditions In the Casualty space, pricing continues to trend upward, with Auto experiencing the most significant impacts. Underwriting scrutiny - even on small, non-complex placements - continues to add complexity to the renewal process, leading to delays in securing approvals and meeting quote due dates. Underwriting referrals have become commonplace. Capacity continues to be reviewed at each renewal, and insurers remain conservative on capacity deployment, even if reductions were taken in a recent past renewal. Coverage is tightening, particularly for communicable disease, pollution, non-owned auto, and other emerging risks. Deductible increases are being imposed, particularly for insureds with poor loss performance.

The Property space is stabilizing. Double digit rate increases remain the norm, but there is less volatility and a general insurer focus on growth rather than book remediation. Faced with budget constraints, insureds are considering deductible increases to help offset program costs. Many; however, are not actually opting for the increase as the pricing reductions are often not commensurate with the additional assumed risk. The claims environment is experiencing an increase in evidence requirements and the trend to rely on external consultants to support adjuster arguments remains.

North America: Featured Industry — Manufacturing

A Look Ahead The rate environment is expected to continue to be challenging in the near term; however, considering insurer growth targets, pricing may stabilize by year-end with the exception of risks with unfavorable loss experience. As market pricing is up, there will likely be further insurer interest in increasing capacity from both North American and Broking Center insurers.

Industry Issues In Q1, the marine industry experienced several unusual circumstances. On one hand, the impacts of COVID-19 kept fuel prices low and airplane capacity abundant, which continued to create favorable, cost-effective shipping conditions. On the other hand, ocean transport continues to be fraught with mishap. The major Q1 event — the impact of which has not yet hit the insurance market — occurred in March when a skyscraper-sized ship, the Ever Given, a 224,000-ton container ship, became lodged in Egypt’s Suez Canal. The Ever Given completely blocked one of the world’s busiest trade routes through which about 12% of the world’s trade volume, including 1.9 billion barrels of oil, passes per day. The impact of this event has held up $9 billion in global trade per day and has slowed supply chains that were already affected by port closures due to the pandemic. Also, in recent months, four ships have hit heavy weather, sending the containers that were on deck overboard. In addition to ocean cargo challenges, warehouses have also experienced loss of inventory stemming from tornados and straight-line winds.

Market Conditions It remains to be seen how much of the loss stemming from Q1 events will be insured as most marine policies exclude coverage for delay. In addition to the major events of Q1, Marine losses are on the rise generally in terms of both frequency and severity, and the Marine insurance market remains challenging. Pricing continues to be up for most renewals. Insurer appetite is becoming more focused. Coverage for Communicable Disease and Cyber, if not excluded in 2020, is being excluded across the board now. Capacity constricted over the past two years but has now stabilized, although there has been a trend amongst some insurers to transition from 100% participation to quota share. Deductibles are generally stable, except for risks with poor loss performance and/or warehouse inventory risks. Underwriters are beginning to review current wind definitions in Cargo policies, and they are expanding the CAT deductibles to include tornados and straight-line winds.

North America: Featured Industry — Marine

LandscapeThere is widespread economic optimism, with early economic forecasts pointing to potential growth of around 6% in 2021 fueled by low interest rates, a successful, aggressive vaccination rollout, and massive economic stimulus. On the vaccination front, the rollout pace has increased dramatically over the quarter, and about 3 million shots are being administered daily. Many schools, businesses and retailers have already returned to (near) normal activities with a wider reopening expected mid-summer. A $1.9 trillion stimulus package was approved in March, and an additional package aimed at infrastructure, sustainability and closing the inequality gap has been proposed.

Beyond the economy, concern is simmering related to the spread of COVID-19 variants, rising case counts, and the potential for vaccine-resistant mutations. Issues of race, gender and equality are at the forefront of social movements and legislation. Cries for more humane and orderly immigration management are escalating.

In the insurance environment, the major event of Q1 was the February 12–20 Polar Vortex that swept across the southern U.S. and Mexico ushering in record-breaking cold temperatures. The resulting damage and business interruption losses are expected to be well over US$20 billion — making for the most expensive winter weather peril on record for the U.S.

Market conditions remain challenging, although there are signs that more moderate conditions may be emerging. But for now, price increases continue, and there is pressure on limits and retentions. The January 1 treaty renewals were more favorable than expected; however, there was a tightening of terms and conditions, and these restrictions will inevitably pass down to client placements. New capacity is coming into the market. Insurer appetite is focused but expanding in some key areas. Insurer information requests have become more detailed and onerous, and decision times have extended.

Insurers are competing for talent, and several key insurers have made high profile hires. The movement between insurers by experienced underwriters has in some cases led to more aggressive pursuits of placements where there is inherent familiarity.

Featured Country: United States Q1 2021 Market Dynamics

Overall Conditions Rates Capacity Insurer Attitudes Limits Deductibles Coverages Reinsurance

Automobile

Aviation

Casualty/Liability

Construction

Crisis Management

Cyber


Environmental

Financial Lines

Marine

Products Liability


Property

Surety

Trade Credit


Automobile

Aviation

Casualty/Liability

Construction

Crisis Management

Cyber


Environmental

Financial Lines

Marine

Products Liability


Property

Surety

Trade Credit

Small to Mid-Sized Client Placements

Large and Complex Client Placements

Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Deductibles

Down

Flat

Up

Capacity

Abundant

Ample

Constrained

Reinsurance

Abundant

Ample

Tightening

Rates

Down

Flat

+1–10%

+11–30%

>+30%

Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

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Featured ProductsAutomobile Rate increases continue but have moderated slightly. Capacity is adequate for most insureds; however, those purchasing very high limits may find them cost prohibitive. In 2020, many insureds reduced their limit; with adjustments already made, flat limits are expected in 2021. Some insureds continue to seek cost savings through deductible increases. Pricing is expected to remain challenging during Q2.

Aviation Hard market conditions persist due to attritional losses as well as increased and unprecedented liability awards which have impacted reinsurance and direct market rates. Limits are under pressure in certain sub-segments such as General Aviation and Aviation Products; overall capacity remains constrained but stable. Insurer appetite remains highly selective, and very detailed underwriting information is required. Pilot warranties are being tightened for General Aviation. Excess Non-Aviation coverage — previously readily available — has been removed, or limits have been lowered and/or higher underlying limits have been mandated, particularly for the aerospace and airport sectors.

Casualty/Liability The primary marketplace is competitive, while the Umbrella and Excess Liability market remains challenging; significant Umbrella and Excess rate increases and coverage decreases are common, although they have moderated somewhat since 2020. Capacity continues to be constrained for the most difficult risks, but more straightforward risk profiles are not seeing a shortage of capacity. There is increased focus on clarifying or excluding coverage for chemicals, energy, communicable disease, and wildfires. Following the adjustment of retentions and Umbrella attachment points that occurred in 2020, most insureds are maintaining the same structures this year. Underwriting authority is shifting, and some underwriting delays have been experienced.

Crisis Management While pricing is up only modestly, market conditions for larger and more complex risks have become more challenging, driven by COVID-19 impacts, particularly with emerging markets and sovereign payment risks. Capacity is sufficient for most risks; some insurers have left but others have entered so the net impact is negligible. Underwriter appetite is trending downward in high-risk countries, and for payment-related risks. Underwriters are cautious and there is greater oversight of underwriting decisions, particularly for larger risks. The market is expected to moderate as the impacts of COVID-19 no longer loom as an unknown threat.

Cyber Recent high-profile hacks and a general escalation of cyber threats is creating a challenging market environment. Significant rate increases are being applied nearly across the board. At the same time, pressure for insureds to increase their retentions is growing. Coverage is tightening, and some insurers have introduced sub-limits and coinsurance penalties for ransomware losses. Insurers continue to retract capacity across their portfolios. There is increased scrutiny on underwriting controls and insurers are reevaluating their underwriting performance on both an individual risk basis and across their portfolios.

Environmental Pricing is up modestly for favorable risk types; however, challenging risk types such as oil & gas, global industrial portfolios, hospitality, healthcare, residential real estate, landfills and military housing are experiencing more significant rate increases. While some capacity has been withdrawn, ample capacity remains. It has; however, become common for insurers to limit line sizes to less than $15M per incident/aggregate. Coverage clarifications and restrictions for PFAS, PFOA, mold (especially for residential and healthcare), underground storage tanks, and emerging contaminants have become common. Underwriting scrutiny is high.

Employers Liability/Workers Compensation With solid performance in the Workers’ Compensation space, insurers are keen to retain and grow their portfolios. As a result, only modest rate increases are being imposed. Workers Compensation terrorism risk is experiencing decreasing premiums, as many employers have reduced staff in major city offices. Capacity remains abundant, even for insureds with high concentrations of employees. Insureds are generally maintaining existing deductible/retention levels and in some cases, there is pressure from Umbrella insurers to raise Employers Liability limits. Aggregated retentions previously available to self-insured clients for Communicable Disease are no longer available in some cases.

Financial Lines Driven by continued frequency and severity of losses, overall market conditions remain challenging as insurers continue to seek rate, although the annual incremental correction is beginning to taper, likely at least partially due to new market entrants creating a more competitive dynamic. While Securities Class Actions were down 29% in 2020, underwriters remain focused on class action-related risks, as well as event-driven litigation (COVID and other sources), and the wave of new special purpose acquisition companies. In the Employers Professional Liability space, insurer concerns over COVID-related claims and a new, more employee friendly presidential administration are expected to drive up already historically high settlements, verdicts and defense costs. There is concern that existing rates may be insufficient to address these potential increases.


Featured ProductsMarine The market remains challenging as large losses continue. Significant rate increases are the norm, with the exception of stock throughput risks. Insurers are drawing down their capacity on some risks which is requiring re-negotiation of quota share programs. Coverage restrictions for COVID and Cyber continue to be required. Underwriters have become more selective, and some have become less flexible. New insurers are entering this space and the new capacity is expected to create a more competitive landscape.

Professional Indemnity An orderly market correction continues in the face on ongoing loss frequency and severity. Rate increases persist, with larger firms and excess layers - especially at high attachment points - experiencing the most significant increases. All segments of accountants and consulting firms are experiencing a challenging pricing environment. Capacity has remained relatively stable as new market entrants have filled the void created by legacy insurers’ increasingly conservative capacity management. Underwriting appetites are shifting, and underwriters have become more selective and conservative, particularly as respects larger risks.

Property Risks with poor loss experience, heavy CAT exposure, low attachment points, and/or difficult hazard classes/occupancies such as food and habitational frame real estate are continuing to experience challenging market conditions; however, there has been some leveling off on pricing. There has been a shift amongst some insurers writing single-insurer placements to reduce blanket total insured value limits. Coverages are tightening, especially for Contingent Business Interruption and any indirect Business Interruption coverage such as Civil or Military Authority, Ingress/Egress, and Service Interruption. Strikes Riot and Civil Commotion exclusions continue to be required. Capacity is generally sufficient, and well risk-managed risks with favorable attachment points may even experience over-subscription. Some capacity is being offered only if insurer policy forms (rather than broker manuscript forms) are used. Many insureds are exploring higher retention/deductible options in an effort to gain more control over total cost of risk. There has been a shift in underwriting authority and referral activity.

Surety The market has become more challenging due to the impact of COVID restrictions on the US economy. A number of surety-reliant industries such as oil and gas, retail, travel and hospitality have experienced financial impacts that have affected their surety risk profiles. As a result of some less favorable risk profiles, as well as general reinsurance price increases, insurers have become more cautious and conservative, and pricing has increased, even for some favorable risks. Terms have become more restrictive, and some insurers are requiring increased levels of collateral. Capacity remains sufficient; some key players have reduced their offerings but his has been offset by new entrants.

Trade Credit Overall market conditions have improved. Pricing has eased, and in some cases, flat renewals have been achieved. Capacity is stable, and has increased slightly, although some insurers are imposing higher deductibles. Appetite is expanding. There have been some instances of insurers seeking to reinstate coverage they withdrew last year.


Featured Country: Canada Q1 2021 Market Dynamics

LandscapeAs 2020 drew to a close, campaigns for COVID-19 vaccinations began across Canada and other parts of the globe, signaling a beginning of the end of the pandemic. However, it will take many more months before the vaccines reach enough of the population that society and economy can begin to truly recover. Until then, Canada continues to deal with the public health crisis that has necessitated renewed regional shutdowns and curfews and slowed economic growth dramatically from the rebound witnessed in the third quarter. Beyond the virus, international uncertainty remains high, and protectionist trends continue to weigh on the prospects for Canada’s export-oriented economy. The Bank of Canada will continue its policy of extraordinary monetary stimulus until at least 2023.

While the full potential of COVID-19 loss impacts remains unknown, there are signs of market stabilization. Insurers have, for the most part, made the necessary adjustments to remediate their portfolios, and are starting to shift their focus towards growth and profitability. Many insurers; however, still reported an underwriting loss in 2020, so while there are positive signs, the market softens much more slowly than it hardens, and it could be a few renewal cycles before reductions are seen. Underwriters remain cautious and continue to tighten some terms and conditions and, in some cases, are offering less capacity. The market is seeing a high volume of submission activity and some underwriters are overwhelmed and responding slowly.


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Featured ProductsAutomobile The environment remains challenging. Significant rate increases continue. Underwriters are inflexible and not as willing to compromise on coverages or pricing.

Aviation Largely as a result of increasing reinsurance pricing, rising loss costs, and significant recent general aviation, products, and grounding losses, insurers remain focused on rate increases aimed at restoring profitability, even despite exposure decreases across several key segments (airlines, airports, operators) due to COVID impacts. Minimum premiums have become the norm. There is limited appetite for new business. Capacity is generally sufficient, even in situations where incumbent insurers have reduced line sizes.

Casualty/Liability For primary lines, capacity remains sufficient for most classes; however, the rate environment is challenging. For Umbrella and Excess lines, capacity has notably contracted, pricing is up, and attachment points have increased, creating greater demand for increased limits.

Environmental Despite an increase in year-over-year remediation costs, the market overall is stable with a slight appetite refinement. With two new entrants into this space, capacity is stable; however, a few specific classes are experiencing slight capacity reductions. Technical underwriting continues. Insurers which had relaxed their underwriting discipline have now taken corrective action. While limits are generally stable, deductible increases are being mandated for some sectors such as upstream oil and gas, mining with large tailings facilities, and rail transportation of oil.

Financial Lines The market continues to be challenging. Capacity is reduced. Mandatory exclusions and limitations related to Cyber, Intellectual Property, Absolute BI/PD, and Defense Outside the Limit are more frequent. Pricing continues to increase significantly, especially for public companies, dual-listed companies and difficult risk types and sectors such as Quebec risks, cannabis, oil & gas, mining, and COVID-challenged risks. Pricing for IPOs is particularly challenging due to limited capacity. To help offset price increases, insureds are considering alternative D&O program structures and higher retentions.

Marine The market has somewhat stabilized coming off a very difficult 2020; however, insurers continue to be very disciplined, and pricing continues to be modestly up.

Professional Indemnity Insureds with favorable loss experience are facing low double digit increases while those with poor loss experience are experiencing more significant increases. Some insurers continue to suffer from adverse loss development, which is impacting their capacity and appetite.

Property Market conditions remain challenging. Underwriters are under significant book performance pressure. Many have become highly selective and are scrutinizing every risk detail. Restrictions — particularly for communicable disease and cyber — have become common. Submission volume is high, and underwriter response times have slowed. Capacity remains tight. Manuscript wordings are being replaced with standard insurer wordings. Deductible increases are being mandated, often without a commensurate pricing credit.

Surety Market conditions are favorable. The government has provided support to struggling sectors, so COVID losses have not materialized as expected. Pricing remains modestly up, and deductibles are generally flat. Capacity is sufficient.

Trade Credit Pricing is modestly up. Capacity is limited in certain sectors, particularly retail and automotive. Claims activity has increased. Insurer appetite has contracted, and underwriting is highly selective. Some insurers are requesting audited financials prior to quoting. Deductibles are increasing — either mandated by insurers or requested by insureds as a mechanism to offset price increases.

Featured Country: Canada Q1 2021 Market Dynamics

Geography Trends:EMEA

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EMEA, like the rest of the world, faces ongoing economic uncertainty related to the global pandemic, with the implications of Brexit also yet to become fully clear. Many businesses continue to rely on government support to survive, and governments are investing unprecedented amounts of resource into the system.

Continued spikes in infection rates, recurring tightening of restrictions, and the expected rise in unemployment once the furlough scheme is closed have all impacted the outlook for growth and reduced the chances of a rapid recovery from worst recession in 300 years. It is now projected that the economy will return to its pre-pandemic peak in late 2022.

In the meantime, there is widespread anticipation of the COVID-19 vaccine rollout and various deals being struck across the region with vaccine suppliers. Business also continues to adapt to the new EU Brexit arrangements and trade barriers.

EMEA: Regional Landscape

Insurance Market & Key Risks Pricing is tempering slightly Market pricing continues to be significantly up; however, insurer focus is beginning to shift from remediation to profitable growth. As a result, there has been some moderation of the difficult conditions seen in 2020.

Some pockets remain particularly challenging Directors & Officers, Cyber, Natural Catastrophe Property, Contingent Business Interruption, and Construction, as well as energy, food, and waste risks remain particularly challenging.

New pricing mechanisms are becoming more prevalent There is a slow but steady migration toward alternative pricing models such as pay-as-you-drive, pay-how-you drive, price-per-minute (or kilometer), etc.

Appetite is focusing Underwriters are becoming less flexible on accommodating business outside their core appetite.

Risk management / control is at the forefront Insurers are increasingly imposing risk management / control measures as a prerequisite for offering favorable terms.

Regulators have driven industry changes Activities of regulators - most notably through the UK FCA Business Interruption Test Case - have brought many issues to the forefront, creating both short-and long-term impacts.

Claims Environment Insurer performance is solid despite a challenging environment The claims environment is difficult, in part due to ongoing logistical challenges related to court systems. Social inflation and similar issues are driving cost in third party claims, and assessment of business interruption is a specific issue in the first party arena. Despite these complexities, overall claims performance across the industry for most lines of business remains solid, with valid claims being managed appropriately, albeit seemingly more slowly.

Centralized authority continues to be a trend Decision-making authority is transitioning away from local branches to central teams, making local relationships less impactful while heightening the impact of executive relationships and claims advocacy.

Insurer cost containment measures may be detrimental To manage costs, some insurers appear to be sacrificing quality in adjuster nominations and in other areas of expertise.

Tips for Clients Provide robust information Tell your story to underwriters with as much detail as possible. Differentiate your risk. Share what you are doing to manage and mitigate risk.

Start early With a notable increase in information requirements and referral underwriting, the process is taking longer. Allow sufficient time to react to unfavorable insurer proposals.

Explore options Establish priorities and consider tradeoffs such as alternative program structures, capital solutions, and rating mechanisms.

Review policy wording Consider how your risk appetite and profile have evolved and work with Aon to ensure your coverage terms adapt to these changes.

Be proactive about claims Leverage Aon’s insurer claims performance insights to inform your market selection. Familiarize yourself with insurer responsibilities and claim commitments. Work with Aon to secure claim coordination clauses / follow-the-leader clauses. Take an active role in the nomination of adjusters in first party lines. Engage specialized claims advocacy resources.

EMEA: Market Overview


EMEA

Angola

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EMEA: Q1 2021 Market and Claims Dynamics

Market DynamicsInsurer Attitudes

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Quantum Acceptance

Speed of Payment


EMEA

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EMEA: Q1 2021 Market and Claims Dynamics

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EMEA: Q1 2021 Rate Trends





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Industry Issues After a COVID-induced slow-down in 2020, optimism has emerged, and many ‘paused’ and new projects have resumed. Given that companies are looking to reduce office space as more workers work remotely, the residential sector has rebounded more quickly than the non-residential sector; some commercial projects remain on hold. The industry will benefit from large investments in infrastructure that are expected across the globe via government stimulus designed to dynamize the economies and generate jobs. However, there will be continued challenges related to elevated costs of materials from ongoing supply chain disruptions. The industry remains focused on supply chain simplification, transitioning to green techniques, expanding technology use, building a skilled workforce, focusing on targeted end-use, and delivering projects more collaboratively.

Market Conditions The construction industry has been hard hit by challenging market conditions, largely due to an extended period of poor loss experience. Capacity is limited for core construction products resulting in notable pricing escalation across Construction All Risks, Third Party Liability, Professional Indemnity, Surety, and Directors & Officers, as well as for risks with international exposure, and larger, layered, single project type risks. Appetite is stable with the exception of Professional Indemnity where there is a very narrow field of insurers, particularly for new business and/or single projects. There is a growing shortage of qualified underwriters in this space, and underwriting scrutiny is high, especially for complex infrastructure projects. While claims frequency has stabilized, insurers have become less cooperative and accommodating, and claims processing has generally slowed.

EMEA: Featured Industry — Construction

A Look Ahead As restrictions continue to lift across the region and projects delayed or deferred from 2020 will resume as stimulus packages materialize, the construction industry anticipates healthy growth. Contractor confidence is high — not only for a 2021 rebound but for a strong, longer-term bounce back as the backlog of projects grows. Current market conditions are expected to continue - with Professional Indemnity, Directors & Officers and larger, single project type risks experiencing the most challenging conditions.

Industry Issues As the industry bounces back from the disruptions of 2020, it emerges stronger, with myriad operational adjustments having been urgently made that position the industry for the future. However, challenges remain. There is a growing skilled labor gap, as the industry has shifted from traditional assembly lines to technology-driven operations which require a more tech-savvy workforce. Ongoing trade disputes threaten profits. And real-time, second and third level supply chain visibility, which has traditionally been difficult to track, is becoming a must.

Market Conditions The insurance market for Manufacturing risks remains challenging, with pricing increases continuing, even for well-managed, loss-free risks. Appetite is narrowing, and underwriters are withdrawing capacity, particularly in the Natural Catastrophe Property space, where reinsurance has become more constrained. While many placements experienced mandated deductible increases at last year’s renewal, those that did not are seeing deductible increases now and are finding that the resulting premium offset often does not correlate to the additional risk assumed. Coverage terms — particularly for Business Interruption, Cyber and Communicable Disease are being clarified and/or restricted. Negotiations have become slower and more challenging, especially with insurers whose underwriting and claims functions have been centralized. Insureds are expected to evidence transparency and sound ESG practices and policies to achieve favorable results.

EMEA: Featured Industry — Manufacturing

A Look Ahead Supply chain vulnerabilities will continue to be a key area of focus for the industry. Companies will look to optimize end-to-end operations, including adopting more sophisticated and proactive risk management practices. Political, Credit, and Cyber risks will draw increased attention as respects Risk Management and TCOR approaches. Investments will be made in project management to drive efficiencies, and on-the-job training to develop a skilled workforce. Insurance market pricing will continue its upward trend as insurers remain focused on returning to profitability. Underwriting scrutiny will continue. Aon’s Business Supply Chain Management consulting will remain a valuable tool for companies seeking help in this space.

Industry Issues The pandemic provided a major opportunity for the pharmaceutical and life science industry. To fight the virus the industry developed solutions, ramping up production of PPE and ventilators early on, and then developing treatments and vaccines. Within a year, vaccines have been brought to market, through collaborative efforts (including with regulators), and are now being produced at scale. At the same time other medical services and treatments have been delayed, reducing demand in some areas and delaying product launches.

Market Conditions Despite a notable market adjustment during the 2020 renewals, pricing remains high for the current renewal cycle. Capacity is tight, but still sufficient in most cases, although more co-insurers are needed to complete placements. Coverage clarifications and exclusions are being imposed — particularly for Business Interruption. As the risk profile evolves across the industry, underwriters are scrutinizing every risk and underwriting escalation is common.

EMEA: Featured Industry — Pharmaceuticals & Life Sciences

A Look Ahead Overall, the pharmaceutical and life sciences industry is expected to grow annually by double digits in 2021 and well into the future — not only through continued COVID-related breakthroughs, but also through increasing demand for and approval of drugs for a population that is growing unhealthier and older, and through increasing investment in research and development. In the short run, the insurance market is expected to continue to be challenging, with rate increases, tight capacity and stringent underwriting approaches. Midterm, we expect a review of supply chains and outsourcing arrangements, as the need for large scale production and “vaccine nationalism” has demonstrated the interdependent nature of the industry. Longer term, as pharma risk profiles continue to morph, expect new, innovative solutions to accommodate the changing needs of this dynamic industry.


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LandscapeDespite massive economic support provided by the French government, as well as loans provided by the EU, the French economy continued to suffer in Q1 due to the third COVID-induced national lockdown. Presuming a fourth lockdown can be averted, the economic focus has now shifted to recovery. The GDP growth forecast has been revised to 5% for the full 2021 year – a notable improvement from -8.1% in 2020.

The insurance market can be summarized is one word: remediation. Insurers are working across their portfolios to restore profitability. This has created a challenging environment for insureds, particularly related to Property and Financial lines. Nevertheless, the market remains active, and capacity remains tight but sufficient, with the notable exceptions of D&O and Cyber.

Featured Country: France Q1 2021 Market Dynamics

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Featured ProductsAutomobile While remediation activities were not occurring previously, the majority of the January 1st renewals — especially, passenger transport, goods transport and short-term rentals — faced a significantly challenging market due to insurer focus on remediation. Underwriting appetite is strong for straightforward, simple risks more so than large, complex risks. There are limited sources of alternative capacity.

Casualty/Liability Capacity is constricting, and insurers are reluctant to offer 100% — particularly on agribusiness and automotive risks — choosing instead to coinsure across layers. Some ‘embedded’ Casualty coverages such as recall and pure financial loss are seeing significant capacity reductions, as well as coverage restrictions. First party coverage is also being restricted. Insurers are looking to minimize exposure to loss frequency so are requiring retention increases. Pricing is up notably, particularly for risks with international / US exposure. Local underwriting authority has shifted, and most risks are being referred. Insurers are using technical underwriting and requiring specific and granular information. There is little appetite for Energy, Automotive and Agri/Agro business.

Cyber Ransomware claims have had a notable impact on the French Cyber market and insurers are reacting in a variety of manners. Some are proposing quota share arrangements while others are excluding Cyber coverage altogether. This situation has created challenges when structuring placements. While behaviors differ by insurer, some trends are consistent. Capacity from the continental market is generally insufficient, requiring alternative solutions and capacity through the London market, facultative reinsurance, or captives. Fewer and fewer insurers are offering primary coverage; they prefer to be positioned in excess of at least 50 million. Rates and deductibles have increased dramatically, the extent of which varies by risk type and segment. Appetite is very restricted for higher risk types such as logistics, hospitals and clinics, and any risk deemed below standard in terms of cyber management and controls.

Financial Lines D&O capacity is notably constrained, particularly for international / US exposed risks. In addition, these risks are often written on a coinsured basis. Although some new capacity is entering the market, it has not filled the void of the previous capacity withdrawal, and has not served to materially dampen pricing pressure, which remains high. It is taking more time to place / renew risks, creating challenges, particularly when placing excess layers. As for Crime, there is minimal insurer appetite. Coverages are constricting; most notably, Cyber-related coverages are being excluded.

Property Insurers are scrutinizing risk accumulation and volatility exposure and have tightened capacity (across lead insurers and coinsurers), particularly for CAT risks and Contingent Business Interruption coverage. Many lead insurers are limiting their share to a maximum of 25-40%. Price increases are significant and vary based on CAT exposure and loss history. Deductibles continue to increase. Coverages are becoming more restrictive. Despite the challenging market conditions, Long Term Agreements remain available for some risk types and can help to smooth rate increases.

Featured Country: France Q1 2021 Market Dynamics


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LandscapeIn 2020, GDP fell by 4.8%, followed by a 1.7% drop in economic output in Q1 2021; however, as the vaccination campaign gains momentum, economic indicators point to an economic recovery throughout the remainder of the year. Indeed, by the end of Q1, industrial production was growing again – despite a shortage of intermediate products experienced by some sectors as well as other ongoing COVID-related challenges. Domestic demand is strong. Following a slow winter season, the construction sector is picking up pace. The labor market revival continues. In seasonally-adjusted terms, unemployment rose only slightly in Q1.

COVID impacts continue to challenge the insurance market, further pressuring an already difficult environment. Portfolio remediation is continuing as insurers seek improved profitability. D&O and Cyber are particularly difficult, as capacity continues to contract. A key renewal theme is the introduction of COVID-related conditions and clauses. Cyber has also become an important consideration and discussion topic. The underwriting process has become more rigorous and time-consuming. Underwriters are seeking more detailed risk information and greater transparency.

Featured Country: Germany Q1 2021 Market Dynamics

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Featured ProductsAuto COVID has served to decrease the frequency of auto losses, hence, the market is competitive and stable.

Casualty There is continued pricing pressure, particularly for automotive related business (for recall and product liability). Underwriting is focused on capacity management and reduction.

Cyber Recent cyber threats, attacks and related activities are triggering higher demand from underwriters for risk information and risk transparency; underwriting requirements are becoming more stringent and rigorous. The market has already suffered substantial losses, and as a result, rates are hardening. Terms and conditions are tightening. Capacity is tightening.

Financial Lines The market is very challenging, especially for D&O. Pricing is significantly escalated and capacity is constrained. At the same time, coverages are tightening as new clarifying and exclusionary language becomes more common. COVID-19 is exacerbating these conditions, particularly for insureds with losses and/or those who are experiencing financial challenges.

Property The market remains challenging, especially for distressed and/or loss-driven industries. Insurers continue to seek rate increases in an effort to stabilize their portfolios and improve profitability. Increased loss severity is leading to more rigorous underwriting and risk management requirements. Silent cyber exclusions and COVID-19 related clauses continue to be mandated.

Marine The market continues to firm as insurers continue to remediate their portfolios. Capacity is constrained but available.

Engineering Lines For risks with favorable loss ratios, capacity is abundant, competition is strong, and terms and conditions are favorable. Complex lines of business or risks with unfavorable loss ratios, on the other hand, are experiencing a contraction of capacity, notable rate increases, and in some cases, mandatory increases in self insured retentions. Coal related activities are experiencing a difficult market due to carbon emmission strategies. Mandatory cyber – including silent cyber – exclusions are becoming a common discussion topic.

Featured Country: Germany Q1 2021 Market Dynamics


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LandscapeThe Irish economy has remained robust through the COVID pandemic with GDP growth of 3.4% in 2020 and 4.6% forecast for 2021. This is despite a significant short-term spike in unemployment to 24%, driven by a sustained lockdown period which had major impacts on all hospitality, leisure, construction, and retail business. Following this spike, the underlying unemployment rate remains at 5.8%.

Tax revenues have remained strong, driven by continued performance in the Life Science, Pharma, Food / Agribusiness and Technology sectors. Foreign Direct Investment has played a crucial role in the economy. The government has provided relief through Pandemic Unemployment Payments across the affected sectors, and this has been financed through increased borrowing at very low interest rates. The vaccination program is well underway, with more than 30% of the population including the most vulnerable now vaccinated. Hospitalizations and ICU cases are well down and nonessential retail and construction has reopened, with hospitality scheduled to begin a graduated reopening in early June.

A complex set of market dynamics is at play in the insurance industry, and as a result, some volatility and generally challenging conditions persist, particularly in the Property, D&O and Cyber arenas, and for multinational risks where the market is subject to global trends. The persistent low interest rate environment continues to pressure insurer profitability, although some insurers — as a result of COVID-related restrictions which reduced exposure profiles — were able to achieve their 2020 profitability goals for some lines of business. The impacts of the Personal Injury Court award reforms have yet to settle. There have been Brexit-related challenges locally, but they have generally resolved. The local marketplace has been slow to innovate; however, there are signs of new competition entering the market which is expected to serve as a catalyst for change.

Featured Country: Ireland Q1 2021 Market Dynamics

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Featured ProductsAutomobile Market conditions are stable, and there are signs of more competition, partially as a result of a reduction in claims and exposures, driven by COVID-related restrictions.

Casualty/Liability There is continued price and capacity pressure, and underwriting is rigorous – with extensive, detailed information required. Conditions have not moderated despite new judicial guidelines reducing personal injury awards, particularly for minor injuries.

Cyber The ongoing, high profile cyber attack has heightened awareness across the country of cyber risk and exposures. The market has suffered considerable losses and remains in a state of flux, with rates hardening rapidly, terms and conditions tightening, and underwriting requirements becoming more stringent and rigorous.

Employers Liability / Workers Compensation The judicial reforms – expected to improve insurance market conditions – have yet to filter through, so market conditions remain stable but slightly challenging, driven largely by the ongoing plaintiff-friendly judicial system.

Financial Lines As high frequency and severity of claims activity continues, the market remains challenging – particularly for public and private D&O – with increased pricing, reduced terms and conditions, and significantly constrained capacity.

Property The market remains challenging, particularly for loss-active and/or CAT exposed risk types and multinational placements. Well performing risks placed in the local market are experiencing more favorable conditions.

Featured Country: Ireland Q1 2021 Market Dynamics

Featured Country: Italy Q1 2021 Market Dynamics

LandscapeDespite grants and loans from the European Union Pandemic Recovery Fund totaling more than €200 billion, the Italian economy suffered again in Q1 following a resurgence of COVID cases and related restrictions. Government leaders are now focused on increasing the speed of the vaccination rollout and freeing up additional economic stimulus. There are expectations that new economic development be digital, inclusive, and sustainable. There is optimism that the 2021 economy will rebound: economic growth of 4.2% and 3.6% is expected for 2021 and 2022, respectively.

In the insurance market, profitability and portfolio remediation remain the key insurer priorities and the market overall remains challenging. The lines of business experiencing the most challenging conditions are Property, Construction and Financial Lines, where rate and deductible increases — as well as capacity reductions — are occurring, even for well-managed, loss-free risks. Health & Benefits, Products Liability, Professional Indemnity, and Auto are generally stable. Credit Solutions are experiencing a capacity crunch due to an expected increase in claims and a limited number of insurers in this space. Market conditions are most challenging for large, global placements; however, smaller, domestic placements have not escaped the market impacts.

Looking ahead, the life insurance sector remains sensitive to ultra-low interest rates and government credit spreads, while the nonlife sector will stabilize, reflecting the expectation that claims frequency will remain low as COVID-related restrictions continue into 2021.


Automobile

Aviation

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Construction

Energy

Financial Lines

Marine

Products Liability


Property


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Automobile

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Featured ProductsAutomobile There are two opposing forces at play. The overall insurance market is challenging; however, Auto-related exposures and losses have decreased due to COVID-related restrictions. The intersection has resulted in a stable Auto market environment.

Casualty/Liability The market is challenging. Insurers are reducing their capacity, requiring more co-insurers to complete placements. Rates are increasing, particularly for pharmaceutical risks and placements with US exposure. Coverages are tightening as new exclusions (e.g., Cyber, Communicable Disease) are widely applied.

Financial Lines The market — especially for D&O placements — is very challenging. Insurers have narrowed their appetite, withdrawn capacity and adopted more stringent underwriting practices. Key market drivers include rising litigation for non-US companies, the economic crisis, and other COVID-related impacts. The Cyber market is becoming more challenging as well, but not to the same extent as D&O.

Marine Securing high limits and broad coverages is becoming more challenging. Rates continue to rise, particularly for pharmaceutical, automotive, and fashion risks. Appetite is narrowing, especially for Special Risks.

Featured Country: Italy Q1 2021 Market Dynamics

Property Insurers are reducing their capacity, requiring more co-insurers to complete placements. Rates are increasing, and there is more scrutiny on exposures to CAT and weather-related events. In some cases, premium increases are being offset through reductions in limits and increases in deductibles. New exclusions for Cyber and Communicable Disease are being broadly applied.

Surety As bond activity picks up, Surety underwriters are now underwriting on a case-by-case basis, with heightened scrutiny and some risk types becoming out-of-appetite for key insurers. Rates are rising due to increasing loss expectations stemming from heightened valuations (i.e., loss amounts up to 40% of revenues). This trend is expected to continue through 2021, with possible further increases.

Trade Credit Pricing increases are the norm, even for risks with favorable loss history. Capacity is decreasing. Insurers have become more selective. Due to declining turnover and current liquidity problems, underwriters are very cautious in writing new risks. Deductible levels are increasing, particularly for larger risks, as insurers look to manage claims frequency.


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LandscapeMany countries in the Middle East are in a continued state of restricted travel and other activities, in an effort to curb the further spread of the virus. Robust vaccination rollouts; however, are expected to provide a return to relative normality in H2, and much of the region will benefit from higher commodity prices and stronger external demand. As a result, the regional GDP forecast for this year stands at 2.5%, following the unprecedented decline estimated at 5.2% in 2020. There is cautious optimism for economic recovery in the Gulf Cooperation Council region, especially considering the ongoing drag on growth from the oil production cutbacks. GCC GDP is estimated to grow by about 1.6% this year, after the 5.4% contraction in 2020.

The insurance market over the last 18-24 months has seen a significant number of international insurer withdrawals and a shift of focus away from the Middle East. For the remaining insurers, the majority of which are national or regional players, there is a focus on cautious growth, much of which is following the structure dictated by reinsurers, although local lines remain quite stable. Property and Financial Lines continue to be difficult classes, where the reduction in capacity, combined with rate and deductible increases, continues to cause difficulty for a client base that has experienced a soft market for the last couple of decades. Casualty coverages are challenging, although not to the extent that we have seen for Property or Financial Lines. Health & Benefits has been a particularly challenging area predominantly due to the reduction in number of lives insured in the territory due to many organizations reducing their employee counts as a result of COVID-19 restrictions. Credit Solutions are experiencing a relatively buoyant position as the expectation of an increase in claims did not materialize as anticipated. Other lines are relatively stable at a local level; however, for large industrial and global risks, generating cost effective solutions continues to be challenging as pricing is high and it can be difficult to find enough capacity to fill a placement.

Featured Country: Middle East Q1 2021 Market Dynamics

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Featured ProductsCasualty Insurers are leveraging a range of approaches based on risk type and complexity. Local insurers are maintaining a relatively stable position for smaller local risks while larger, more complex, and global risks requiring international insurer involvement are seeing more challenging conditions including rate increases, coverage restrictions and reduced capacity.

Cyber While claims results have been favourable to date, there has been a notable shift in underwriting attitudes. Underwriters are much more cautious than in the past and are asking many more questions, although they are maintaining their capacity levels for the time being. Rate and deductible increases are significant. Current conditions are expected to continue.

Financial Lines Insurers have reduced capacity and, in some cases, withdrawn from this market altogether, squeezing total capacity. While coverage offerings have remained generally stable, a number of common extensions are no longer supported by most insurers, including pre-determined Extended Reporting Periods, No Claims Bonuses and Long-Term Agreements. Further, automatic coverage for future offerings is being restricted under D&O. Deductibles have also faced some adjustment across the D&O market, where previously zero deductibles were achievable for side B. There is continued frequency of Financial Institutions fraud claims combined with an increasing number of D&O claims, particularly in Saudi Arabia. Core underwriters remain prudent and open to write business, but only after stricter underwriting and with a limited appetite for those impacted by COVID. Pricing across all Financial Lines is up significantly – most notably for D&O. These trends are expected to continue.

Property Property losses have remained low in recent months and as a result capacity for mid-market business is not a significant issue and has good support from the reinsurance market, although as the risks get larger, capacity at a reasonable price can be a challenge. Further, the reinsurance market is increasing controls on how the local market uses available capacity. Deductibles have remained consistent for small-to-medium risks, with the exception of warehousing risks; however, for larger real estate and manufacturing risks as well as all warehousing risks, insurers are requiring higher deductible levels and are imposing deductible splits particularly around high-risk perils. Property rating is elevated, the extent to which depends upon risk size and insurer appetite, and while some insurers are offering flat renewals to retain favorable business and using cross-selling to increase their client portfolio premium levels, larger, more complex risks are seeing significant rate increases due primarily to demand for capacity. Rate increases are often accompanied by a reduction in sub-limits and deductible increases (as noted above). Insurer appetite remains strong for small to medium risks, while larger, more complex risks are being scrutinized with a view toward profitability over growth. While clients continue to weigh coverage versus price, current trends are expected to continue, and this will place a burden on incumbent insurers to provide more coverage for the same of even less premium.

Trade Credit In Q1, claims experience was reasonably good; non-payments flowed in but those which materialized into claims were not vast and appear under control. Year-on-year losses are down compared to Q1 2020. As local restrictions continue to ease, and normal trading patterns resume, non-payments and losses are expected to do likewise. Insurer risk appetite has gradually returned, and this has allowed for the market to remain stable; however, given the relatively small size of the market, one large claim could serve to de-stabilize it. Assuming that does not occur, capacity will likely continue to strengthen. As for pricing, it remains dependent on sector and claims performance, but insurers continue to pursue quality over quantity, so they remain keen to retain good business in a competitive market.

Featured Country: Middle East Q1 2021 Market Dynamics

Featured Country: The Netherlands Q1 2021 Market Dynamics

LandscapeDespite government support, uncertainty related to global trade and Brexit, combined with the impacts of COVID-19 restrictions, led to an economic contraction of 5.4% in 2020. COVID-related containment measures are expected to gradually ease toward the middle of 2021 as vaccinations progress, leading to a consumption-led rebound of economic growth on the back of pent-up demand and increased consumer confidence. GDP is expected to grow by 1.8% in 2021 and 3.0% in 2022 — tempered by ongoing uncertainty concerning the post-pandemic global economic recovery, as well as post-Brexit UK-EU trade relations.

The insurance market remains modestly challenging, depending on risk type and coverage. Rate increases remain the norm, although there has been a general stabilization from the volatility seen in 2020. Capacity is tight but generally sufficient. Losses from the pandemic did not materialize as anticipated. Coverage interpretation has become notably stricter, and the claims environment is more challenging.

The eventual withdrawal of COVID-related government support is widely anticipated. While a general trend toward continued insurance market stabilization is expected, there may be some capacity withdrawal and price escalation in some lines of business when the government support program ends.


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Crisis Management

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Featured ProductsAutomobile Pricing models are shifting from traditional rating to alternative models such as pay-as-you-drive, pay-how-you-drive, etc. Capacity is expected to enter the market as insurers gain experience with new types of coverage and rating approaches. Due to rising losses, appetite is becoming limited for carsharing, ridesharing, and delivery.

Casualty/Liability The pricing environment remains challenging, especially for excess layers and placements coming off Long Term Agreements. Many insureds are considering deductible increases to help offset premium increases. Insurers are transitioning to a ‘back to basics’ approach. Coverage extensions are being withdrawn, and in some cases, blanket exclusions are being applied, creating challenges as insureds look to cover casualty-related risks via other coverages/policies. Global companies with US exposure are experiencing significant constraints and rate increases. Several insurers — particularly in continental Europe - are reducing capacity or withdrawing from the Casualty market, especially for Global companies. Insurers continuing to offer capacity have narrowed their appetite. The claims environment is challenging; losses below the deductible are often no longer handled by insurers, and insurers are adhering strictly to policy language with minimal flexibility.

Crisis Management Pricing is up only modestly, despite an increase in claims and elevated risk profiles. Insurer appetite is healthy, and capacity is available; however, there is a shift to exclude or sublimit some coverages such as Cyber Extortion. Pre-incident and response services have become more important.

Financial Lines The market is challenging, with significant price increases and focused appetite. Capacity for US-listed companies is limited.

Marine Losses have remained steady and price increases continue. Capacity has constricted and alternative markets are limited; however, sufficient limits can be secured in most cases. Underwriting has become more stringent, especially related to cyber, pandemic, and natural catastrophe exposures. Underwriting audit activity has increased, leading to less flexibility / deviation from underwriting guidelines.

Professional Indemnity The market is challenging, particularly for lawyers, notaries and accountants. Significant price increases remain the norm. Capacity is tight, especially from the London market. Strict Silent Cyber exclusions are being applied by some insurers with limited buy-back opportunities.

Property Sectors with high-risk profiles continue to experience capacity constraints and pricing increases while sectors with lower risk profiles have seen a generally more favorable environment and a leveling off of price increases. Coverage terms have stabilized; blanket clarifications and restrictions are not being imposed. Deductibles had been seen as a mechanism to offset rising premium costs but proposed premium offsets have not been commensurate with the increased risks to insureds, so deductible options are not explored as regularly as they were in 2020. Increases are; however, being imposed for some poor performing risks. The claims environment has become more challenging. Insurers have become strict in coverage interpretation and there is a tendency to ‘deny first’. It is becoming even more important to provide detailed risk information including a business continuity plan as part of the submission.

Trade Credit The challenging market trends experienced in 2020 have tempered as the widely anticipated loss escalation scenario did not materialize as severely as expected, primarily as a result of significant government intervention. However, as the end of government support draws closer, there is concern that credit risk will increase, leading insurers to withdraw capacity and increase price in anticipation of potentially rising claims.

Featured Country: The Netherlands Q1 2021 Market Dynamics


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LandscapeWhile across the Nordics, countries adopted different strategies for navigating the pandemic, the economic fallout and recovery followed similar patterns across the region, with less contraction and an earlier recovery than most of the rest of Europe, despite a second wave of cases in Q1. Bolstered by strong consumer confidence following the roll out of vaccines, economic growth across the region is forecast at 2.5%-3.5% in 2021 and further strengthening is expected for 2022.

In the insurance market, international insurers are driving change. The Nordic region has historically enjoyed broad coverage terms and conditions which are now being challenged. Coverage restrictions are being imposed alongside rate increases across the main product lines. Financial Lines and Cyber, in particular, are experiencing the most challenging conditions. Only smaller, domestic companies in attractive risk classes with favorable loss records are experiencing stable conditions and an abundance of capacity, as these risks can be placed with local insurers which are generally offering more favorable pricing and terms.

For smaller, domestic businesses, as well as product lines dominated by local insures such as Workers Compensation, Auto, and Accident & Health, a stable marketplace is expected going forward.

Featured Country: The Nordics Q1 2021 Market Dynamics

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Featured ProductsCasualty/Liability Due to poor loss performance, significant rate increases are the norm, and some insurers are prepared to non-renew if a targeted increase cannot be achieved. Limits generally remain stable, although there have been cases of reductions being imposed to limit exposure, or where capacity is insufficient. There is limited new capacity entering the market.

Cyber Throughout 2020, insurers reached, and in many instances surpassed, their tipping point as loss frequency and severity outpaced improved risk selection and limited rate increases. The change in risk that has been developing since late 2018, and ultimately tipped the scale in 2020, is a significant rise in ransomware activity. As a result, insurers are imposing material rate increases – particularly for Financial Institutions – and escalated pricing is expected to continue throughout 2021. While some insureds are exploring reducing their limits to offset premium increases, Aon advises working closely with the Aon Team to consider both short- and long-term goals and actions.

Financial Lines In the D&O space, despite continued rate escalation, the pace of rate increase has decelerated from 2020. Capacity remains tight, although there has been some relief from 2020 as new capacity has flowed in. The underwriting process is rigorous and slow. Many larger D&O risks placed with local insurers which have experienced favorable pricing in the past are now deemed underpriced and insurers are mandating significant rate increases (i.e., more so than the rest of the market). Insurers are taking a close look at risks with US exposure. A direct listing or sponsored ADR Level 1 can result in significantly higher D&O rates, driven primarily by high frequency of securities class actions suits in the US.

Crime capacity is constrained, and pricing is elevated. Insurers are imposing higher retentions and sub-limiting some coverages such as social engineering.

Property The local market remains strong and local insurers are supporting insureds. Increases are being applied but they are less extreme than those being mandated by international insurers, which have changed their strategies and transitioned to centralized underwriting. Insurers are now focused on returning to profitability following volatile claims results in recent years driven by Natural Catastrophe and Contingent Business Interruption losses. These costs are being passed from treaty reinsurers to insurers and ultimately, to insureds. In addition, insurers are tightening coverage and mandating deductible increases for some risks.

Featured Country: The Nordics Q1 2021 Market Dynamics


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LandscapeThe insurance market in Portugal is generally hard. There is a notable lack of insurer capacity, and a complete withdrawal from some spaces and poor performing risk types. Deductible increases are being imposed. Exclusionary coverage terms are being required. Pricing is increasing, even on favorable, loss-free risks. The lines of business experiencing the most challenging conditions include Directors & Officers, Cyber, and PDBI, particularly for risks included in international programs/placements.

The current conditions are expected to continue throughout 2021 as insurer appetites and attitudes reflect a continued focus on profitability over growth.

Featured Country: Portugal Q1 2021 Market Dynamics

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Featured ProductsCasualty/Liability Conditions overall are moderately challenging; however, international programs and products liability / recall are experiencing more difficult conditions. Insurer appetite is limited, particularly for auto and risks with US exposure. These risks are also facing significant price and deductible increases, as well as coverage restrictions.

Construction Pricing is escalating as insurer appetite continues to narrow, and the market becomes more selective and conservative overall. There have been insurer delays in issuing acceptance of coverage and speed of payments has slowed.

Cyber The market is hard. Rate increases are significant. Deductible increases are being mandated. Coverage restrictions are being imposed.

Employers Liability/Workers Compensation Market conditions are relatively stable; however, they are expected to become more challenging during the course of 2021.

Energy Market dynamics in the Energy space are heavily influenced by the reinsurance market. Currently, the market is conservative, with some capacity challenges and price increases. Upstream is less challenging than Downstream. Current conditions are expected to continue throughout 2021.

Financial Lines Conditions are very challenging with significant price increases, particularly in Directors & Officers, which has been internationally devastated by class action lawsuits and other high frequency and severity losses. Key insurers are reducing capacity and very few are willing to write lead coverage. In some cases, to help offset major premium increases, insureds are exploring changes to limits and deductibles. In the claims arena, D&O claims are experiencing significant delays in acceptance and payments.

Power The market has been impacted by two key factors: loss activity and reinsurance. Capacity has constricted, and coverage terms are tightening. The extent of rate increase is driven by project type, technology and O&M agreements, and loss record. Appetite is limited for the lead position in larger projects. Underwriting scrutiny has heightened for some risk types.

Professional Indemnity The market is challenging. Insurers are more conservative, pricing is escalating, and deductible increases are being mandated. Hard market conditions are expected to continue throughout 2021.

Property The market is challenging, particularly for international programs with US exposure. Pricing increases, deductible increases, and reduced capacity for both primary and excess layers have become the norm. The conservative market conditions are expected to continue throughout 2021.

Featured Country: Portugal Q1 2021 Market Dynamics


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LandscapeAfter falling 11% in 2020, GDP growth of around 5.5% is expected for 2021, leaving the economy well below where it was at the end of 2019. Pre-COVID economic conditions are not expected until 2022. Some sectors continue to experience health-related restrictions and are relying on governmental aid until activity returns to normal. The country is now balancing health security and economic recovery, recognizing that the two must be addressed simultaneously. The country’s overall recovery will depend on the acceleration of the vaccination rollout, economic policy reforms, the ability to leverage European Next Generation EU funds, and on the restructuring of the production framework.

In the insurance market, claims have significantly decreased, especially related to business travel and health, and many insureds are seeking premium adjustments commensurate with current exposure levels. Despite these pressures, market conditions are not improving. Underwriting remains conservative and rigorous. Price increases are still the norm. Capacity continues to contract – in both the direct and reinsurance markets. Deductibles continue to increase. Conditions are most challenging for Financial Lines (Cyber, D&O and Professional Indemnity), CAT-exposed risks and risks in the construction and energy sectors. There is continued pressure from insureds on insurers to accelerate their innovation and digitalization.

Looking ahead, it is expected that last year’s portfolio re-underwriting will yield lower loss ratios and the market conditions will ease for most classes – with the notable exceptions of Directors & Officers, CAT-exposed risks, and challenging risks types like food and recycling. Also, as ransomware claims continue to mount, the Cyber market is expected to continue to experience very challenging conditions.

Featured Country: Spain Q1 2021 Market Dynamics

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Featured ProductsAutomobile After a prolonged period of challenging market conditions – with many insurers either exiting or reducing their appetite in the large and complex motor space – appetite is expanding and market conditions have started to shift. Insurers are; however, imposing coverage restrictions for challenging risk types such as car rental, garbage services, and public transport.

Aviation Despite a reduction in activity due to COVID-19 impacts, insurer loss ratios remain challenged, and market conditions are hard. Appetite is limited, coverage terms are restrictive, and rates remain escalated. Local capacity is limited, requiring that international insurers be engaged for alternatives.

Casualty/Liability Rate increases are significant, and often imposed in conjunction with mandated reductions in limits and increases in deductibles, especially for larger and more complex risks. Products Liability-related extensions and US risks remain particularly challenging. Challenging conditions are expected to continue throughout 2021, with insurers taking a disciplined approach based on individual loss ratios and exposure type.

Construction Appetite is limited for lead positions for large international construction projects and open cover policies; however, appetite for follow positions – and less complex projects – remains strong (but varies based on technical details of projects, risk profile, and geography). International capacity is often required to complete placements.

Cyber The market is notably hard. Capacity is significantly constrained. Coverage is limited for ransomware and COVID-19 responses. Rate increases are significant and being imposed together with deductible increases and limit decreases. Large, multinational programs requiring high tower limits can be challenging to fulfil. Extensive, detailed underwriting information is being required.

Financial Lines Conditions continue to be very challenging, and capacity is tight for large programs. A COVID-19 Impact Questionnaire and business resilience information being required for D&O. Long Term Agreements and Per Loss Limits are generally not available, and coverage limitations are being required. Capacity and appetite is very limited for IPO risks.

Marine The market has stabilized but varies based on risk type and coverage. Terms and conditions are stable, and rate increases are moderate. Appetite remains strong, with plenty of competitors in the market. Although it may vary by classes in general (and specially in cargo)

Property Insurers are demonstrating strong underwriting discipline, with engineering information being required to advance in the quotation process. Some large and complex risks are experiencing a lack of alternatives for lead insurers. At the same time, appetite is strong for middle market risks where loss prevention measures are a key component of a favorable risk profile. Communicable Disease and Cyber exclusions continue to be required across the board.

Professional Indemnity Capacity is withdrawing for some classes like design and construction risks and legal / finance risks. Pricing and deductibles have increased notably.

Trade Credit Government aid continues to support businesses, keeping insolvencies and creditor proceedings low. As a result, insurer portfolios have performed well and the market is generally stable. Insurers will remain cautious throughout 2021, as government support ends.

Featured Country: Spain Q1 2021 Market Dynamics


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LandscapeThe Turkish economy was struggling even before the pandemic due to significant structural problems, and there is no sign of relief in 2021, as economic indicators such as exchange rates, interest rates, and Central Bank reserves have shown no improvement. Further, COVID impacts and concerns related to case counts, ongoing restrictions, and vaccination momentum remain. The Ministry of Health is working to accelerate the pace of the vaccination rollout.

Despite poor general economic conditions, the Turkish insurance sector increased in Q1 by 16% compared to the previous year and was recorded as TRL25 billion (US$3,5b). 20% of this premium is related to motor; 15% is related to life lines, and 12.5% is related to property.

The hardening market conditions experienced in the European insurance markets in 2020 did not affect Turkish insurers until the renewal of their reinsurance treaties in 2021, when reinsurers imposed higher rates and tighter coverage terms and conditions. As a result, the Q1 insurance market is now beginning to shift. While pricing is up for most classes, the market transition is marked more by capacity reductions and changes in appetite than severe rate increases. Insurer focus is now on profitability over market share. Underwriting authority is transitioning and it has become a widespread practice to refer large and complex risks to central / home office underwriting teams. The lines of insurance experiencing the most challenging conditions are Property, Liability, Cyber and Financial Lines, especially if the exposure / limits are high and some portion of the risk must be placed with the foreign (re)insurers. Clean, well-managed risk are not enjoying rate reductions as they have in the past.

Featured Country: Turkey Q1 2021 Market Dynamics

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Featured ProductsAutomobile State tariff and premium limits apply for the compulsory motor third party liability; motor own damage is open market rated. Due to the depreciation of the Turkish Lira, the rapid increase in the value of vehicles has caused premiums to increase. Insurers have been prudent for motor own damage and generally not willing to offer fleet rates, even if the loss ratio is favorable. Instead, insurers tend to quote by evaluating the insured fleet’s specific activities and vehicle types in detail. There has been a general reduction in limits for non-pecuniary (loss for pain and suffering) damages, and insurer appetite is shifting away from non-pecuniary Excess coverage. The Motor third party liability market remains competitive as many insurers have reduced pricing for personal cars.

Cyber Only a few insurers provide Cyber capacity locally. Due to increased incidents and losses locally and around the world, the market has become challenging. Rate increases are significant across the board, even for renewal business. Retention increases are being mandated. Local insurers are limiting their exposure to EUR or USD 5 Million per client. Ransomware and system failure related coverages are often offered only on a coinsured basis, or sub-limited. Underwriting scrutiny is high and the process is rigorous and time consuming. Insurers have very selective risk appetite compared to prior years and they expect that insureds have a good cyber security posture. They are focused on endpoint security, access control and third-party management. Due to political reasons, there is limited appetite as of the beginning of the year.

Casualty The market in Turkey has been quite challenging in Q1. Few insurers are showing appetite for Casualty risks, especially if it is requested on a stand-alone basis, and some insurers are reducing their capacity. For some products and risks such a Products Liability, Automotive, Chemicals, and Pharma), local solutions are not available or sufficient, and placement with international insurers is required. Professional Indemnity cover for tech companies and software developers is challenging to secure. Rates have increased significantly.

Employers Liability The market has experienced a prolonged period of challenging conditions following Turkish Courts’ decisions to raise compensation amounts annually to reflect changes in legislation and working culture. It should be noted that, in Turkey, a labor law case can be filed up to 10 years post-incident so Employers Liability coverage has a long-tail. Turkish General Insurance Conditions Regulation does not exclude pandemic risk in EL policies, meaning that insurers – since the start of COVID – have become very cautious and not generally open to negotiating rates. There has been a shift in insurer attitudes whereby (re)insurers prefer to reduce their limits provided in hard currencies.

Property Market conditions are challenging in early 2021, following a prolonged period of soft market conditions as well as the Q1, 2021 reinsurance treaty renewals. Insurers have become more cautious and selective, and have reduced capacity for industries that are classified as high-risk.

Financial Lines The market continues to harden for both commercial and financial organizations. Reinsurers are introducing new exclusions to manage potential future COVID-19 related claims. Rate increases and capacity decreases are being mandated for high-exposed industries.

Trade Credit Rates have trended upward since 2020 and Q1, 2021 saw no material change. Claims frequency – initially expected to increase – has not changed notably. Insurers are selective but appetite remains strong in certain industries such as Retail, Food, Pharma and Information Technologies. There remains an expectation that insolvencies and claims will increase so insurers remain highly cautious, and some are including surcharges to policies.

Featured Country: Turkey Q1 2021 Market Dynamics

LandscapeFollowing a record-breaking GDP contraction of 9.9% in 2020, and a bumpy start to 2021 due to spiking numbers of COVID infections, the economy is expected to rebound somewhat in 2021 as the COVID vaccine roll out accelerates and restrictions are eased. With nearly 40 million vaccination doses administered so far, the country’s reopening plan is in “Step 2”, allowing non-essential shops, beauty salons and gyms to reopen, and there is optimism that the vaccine rollout is on-track to support a further easing of restrictions by summer. The economic rebound will be partially offset by an increase in unemployment when the furlough scheme closes as well as disruptions from new Brexit-related EU arrangements and barriers to trade. Despite these disruptions, the economy is expected return to its pre-pandemic peak sometime in 2022.

There are myriad forces at play in the UK insurance market. Brexit related concerns have been at least partially offset by overarching confidence in the robustness and capabilities of the London market. The economic impacts of COVID-19, while not as bad as many initially expected, will continue to ripple through the insurance industry as claims continue to settle out. The FCA pricing review is expected to have cost implications for the UK market as insurers overhaul their business and pricing models. And the persistent low interest rate environment will continue to pressure insurer profitability. These factors create a complex set of market dynamics and as a result, some volatility will remain in the coming quarters.

Featured Country: United Kingdom Q1 2021 Market Dynamics


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Featured ProductsAutomobile Market conditions remain challenging. Rate increases continue; however, some insurers are offering return premiums on the prior year premium to recognize significant reductions in exposure and losses. Limits are stable and in some cases increasing to account for rising loss severity. There has been a tendency with some insurers to offer quotes subject to placement of other lines of coverage. The claims environment has become increasingly challenging due to myriad factors: minor mix-ups associated with insurers’ transition to automated claims intake, challenges reaching insurer claims staff by phone, and delays with engineers and repair technicians.

Casualty/Liability Rate increases continue across primary and excess layers, especially for loss-heavy risks. Coverage terms are tightening, and underwriting scrutiny is being applied to coverage extensions and any risk with excess US auto exposure. There is a tendency to refer / escalate underwriting, leading to onerous information requirements. Centralized claims decision-making is leading to delays on both policy liability and quantum decisions, and generally tougher positions on policy interpretation.

Cyber Cyber market conditions are hardening with a notable acceleration in Q1 due to ransomware activity, material increases in claims frequency and severity, and an increasingly punitive legal and regulatory environment. With new capacity entering the market, large tower placements are still able to renew with expiring limits in most cases; however, attachment points are being reevaluated. Retention increases are being imposed on risks with loss activity. After a period of sustained coverage expansion, insurers are now looking to restrict some coverages, especially related to ransomware, with coinsurance and/or sub-limits becoming common. Business interruption coverage remains available, including for Dependent Business Interruption and Technology / Systems Failure. Underwriting scrutiny is high and security controls are critical to achieving successful placement outcomes. Insurers continue to emphasize panel arrangements, including the use of pre-arranged vendors and legal support.

Financial Lines Market conditions continue to be difficult — even for well-performing risks — with pricing and retentions up significantly across most lines of business and sectors. While new capacity has entered the market, it is not sufficient to replace the capacity lost in 2019 and 2020. It is becoming more difficult to renew with expiring deductibles. Underwriters are scrutinizing information and solvency details. There has been a transition away from broker coverage language toward insurer forms, and exclusions are being applied for insolvency (especially for risks hit hard by COVID-19 financial impacts), and silent cyber. Discovery periods are being tightly managed by insurers.

Marine Following a prolonged soft market, a transition is taking place. There has been a notable withdrawal of capacity over the last 18 months, especially for risks with stock. Insurers are correcting rates — with clean risks seeing modest increases while distressed and out of appetite risks are experiencing sizable increases. There is an increase in ‘following’ placements not following lead rating terms. As line sizes decrease, more excess layers are required. Limitations of coverage terms have become common. Insurers are particularly cautious on non-sprinkler, cold storage and are reducing cover on fire, flood, etc. Underwriting requirements have become onerous. Claims volume is stable; however, the length of time to bring claims to conclusion is longer as insurers demand more information.

Professional Indemnity Rate increases remain high, especially for lower excess layers. While there are signs that new capacity is entering the market, capacity overall remains tight, and some insurers are less interested in writing new business. Broad soft market coverage terms are now being pared back, with coverage restrictions mandated in some cases, and Silent Cyber is becoming a key area of focus for underwriters. Many insureds are considering retention increases on primary layers to help offset premium increases.

Featured Country: United Kingdom Q1 2021 Market Dynamics

Property Rate increases are being applied across the board, with poor performing risks, CAT-exposed risks, and food, hospitality, warehousing, logistics, and heavy manufacturing risks experiencing the most challenging conditions. Some new capacity is entering the market, but insurers are selective about how and where to deploy it. Slip reductions are common, especially for non-target industries. Underwriting has become less flexible and demanding. Insurer profitability is still prioritized over growth, as COVID-related claims uncertainty remains. There is particular nervousness around weather risks. Some insureds are benefiting from the reintroduction of Long-Term Agreements. Lack of alignment on disease wordings are becoming a challenge and often leading to split placements. The claims environment has become more complex, and acceptances have slowed. Quantification is challenging, partially due to lack of face-to-face meetings between clients, insurers and experts.

Surety Government support continues but is expected to be withdrawn soon, leading to uncertainty, heightened underwriter cautiousness and scrutiny, and modest rate increases. Bond sharing between sureties has become more common.

Trade Credit Market conditions remain challenging. Insured losses have not materialized as expected; however, uncertainty remains high as COVID-19 restrictions continue, the end of government support draws closer, and the threat of a potential influx of claims looms. Insurer reactions have shifted back and forth between aggressive (in light of new budgets) to anxious (as the COVID environment changes), making insurer appetite and attitudes difficult to anticipate.

Geography Trends:Asia Pacific

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While some parts of the region — like Australia and New Zealand - have returned to minimally restricted pre-COVID norms and activities (including travel), others — like India, Thailand, The Philippines, and South Korea — are experiencing spikes in infection rates as the race to vaccinate accelerates.

Broadly, the region is expected to grow in 2021; optimistic businesses and consumers are driving up forecasts which were higher at the end of Q1 than at the beginning. The cycle of optimism has led to a further surge in house prices with growth levels in some areas at 17-year highs.

Even as the region looks forward to a 2021 rebound, concerns remain. The strained trading relationship with China has led many firms to seek new or more diversified homes for their products. The workplace of the future will have fewer full-time on-site workers, leading employers to explore options such as job re-distribution to offshore, lower-cost regimes and an acceleration of AI solutions. And the COVID variants continue to proliferate…indeed, it is a race between virus and the vaccination.

Asia Pacific: Regional Landscape

Insurance Market & Key Risks The market is divided Some insurers have rebalanced their portfolios and are, once more, focused on growth whilst others continue to focus on remediation and a return to profitability.

Uncertainty remains high While the end seems to be in sight, the ultimate financial consequences of COVID-19 and related restrictions, as well as their impacts on risks, exposures, and claims, remain difficult to estimate and quantify. All eyes are on FCA Business Interruption test case.

Coverage derogations are a growing concern Insurers are imposing across-the-board clarifications and exclusions, particularly related to silent cyber, infectious disease and contingent business interruption. Newly proposed language is at the heart of many negotiations with differing insurer legal opinion driving a lack of continuity amongst insurers leading to differing terms and conditions on policies.

The underwriting environment remains difficult Information requests continue to get ever more detailed. Often insurers are unable to formalize quotes until all requests — for detailed information and compliance with risk control recommendations - are satisfied. This can lead to last minute deviations from expected terms.

Claims Environment Market trends and COVID issues are challenging the claims environment The impacts of the hard market have strained insurer financials and COVID-related impact has disrupted operations creating increased uncertainty. These challenges have resulted in a high degree of claims scrutiny, greater reliance on outside coverage counsel, and burdensome information demands. This is creating frustration, testing relationships, and, left unchecked, may lead to unnecessary delays and less favorable claims outcomes.

Re-evaluate cyber needs Clients should consider the claims management capabilities and philosophies of insurers when structuring programs for this risk, with loss frequency increasing materially

There is a shift in focus on COVID19 related business interruption Australia has become a focus of the global discussion on this topic with test case activity under way related to Quarantine Act / Biosecurity Act, and broader topics analogous in many ways to those that have previously been subject to the FCA test case in UK.

Tips for Clients Review your risk transfer strategy A strategy set a few years ago based on market pricing, coverage availability, capacity deployment, and your then risk profile is likely not optimal today. Pay special attention to supply chain, exposure to natural catastrophe and cyber risk.

Test your market relationships Many insurers need to increase their portfolio irrespective of risk quality so an alternative insurer may very well think differently about the pricing of your risk. Be wary; however, as it may well prove only that your current insurer is best placed. Submission quality and understanding the key areas of insurer concern are paramount to favorable outcomes.

Leverage alternatives Work with your Aon team to explore options to help mitigate rate increases. Weigh deductible options carefully to ensure optimal risk-retention tradeoffs. Consider facility solutions.

Build claims relationships Consider engaging with insurers and claims service providers pre-loss, to better understand the claims process (in the event of a claim), to agree lines of communication, protocols and expectations, and to form relationships with key claims individuals/teams and decision-makers

Asia Pacific: Market Overview


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Asia Pacific: Q1 2021 Market and Claims Dynamics

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Asia Pacific: Q1 2021 Rate Trends





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Industry Issues The retail industry remains highly susceptible to COVID-19 restrictions. As restrictions are being re-introduced in parts of the region, household spending is again decreasing. Non-essential stores, particularly, small businesses, continue to suffer while e-commerce continues to gain significant momentum. Traditional retailers are working to quickly adapt their business models to enable electronic engagement and reduce susceptibility to future restrictions.

Market Conditions COVID-19 related restrictions have led to a notable decrease in exposure values and claims, and some insurers are imposing higher rating structures in order to maintain premium levels. However, through successful broker negotiations, well-performing risks are experiencing only modest increases. While capacity is more limited on a per risk basis, the industry remains largely attractive to insurers and as such additional capacity providers are often readily available to fill any gaps created by line size reductions. That said, underwriting scrutiny remains high; insurer requirements for detailed information continue to increase, especially related to COVID-19 safety measures and supply chain management. Strikes Riot and Civil Commotion is more often sub-limited or completely excluded in some parts of the region.

Asia Pacific: Featured Industry — Retail & Wholesale Trade

A Look Ahead In 2021, e-commerce is expected to continue to grow at a double-digit pace. Insurance market conditions will continue to be challenged and a disconnect between an ever more complex client need and a market shift to limit cover in some of these key areas will challenge buyer views on the relevance of the products they purchase. Insurers will need to respond to this challenge.

Industry Issues Largely as a result of heightened government investment — particularly in infrastructure projects such as massive railway expansions in China, Japan and Australia — the construction industry continued to grow in 2020, unlike most other industries. Residential construction did experience a slow-down; however, the strong government focus on affordable housing, particularly for developing countries, is leading to significant growth projections for the industry in 2021 and beyond.

Market Conditions Pricing varies widely based on country and risk profile, with some risks experiencing modest rate increases while other poor performing risks experiencing very significant increases. Across the region, underwriting requirements have become onerous, and guidelines are being applied more stringently, as underwriters remain cautious following poor loss performance across parts of their portfolios. Faced with more information to review, underwriter response times have risen. Capacity is contracting, particularly for hard commodities / steel risks, and underwriting expertise in this space is hard to come by. Coverages are narrowing; Strikes Riots and Civil Commotion, as well as Terrorism, is being excluded or severely limited.

Asia Pacific: Featured Industry — Construction

A Look Ahead As governmental investment continues, long-term growth projections remain strong for the construction industry as a whole. The insurance market is expected to remain challenging, with continued rate increases, coverage pull-backs, and extensive underwriting demands. Insurer focus on Professional Indemnity, Delay in Startup coverage, and Defects Coverage are expected to continue for some time.

Industry Issues As economies recover from the pandemic, global trade is surging — and demand for Asian exports is increasing, creating momentum for the manufacturing sector, especially, electronic components, in the region. The region has seen massive growth in output and new orders, despite ongoing supply chain challenges which have driven up prices. The chip shortage for auto exporters continues to be a pain point.

Market Conditions Insurance market conditions remain modestly challenging as underwriters focus on returning to profitability after poor performance in this class in 2020. Indeed, a large-scale fire in the region has led some insurers to reduce capacity for some manufacturing risks; however, capacity is generally sufficient. Rates are increasing, in most cases only modestly, but more significant increases can be prevalent depending on construction, occupancy and loss performance. Appetite is focused on risk quality and there is a growing disconnect between the poorer performing or higher risk placements and those in the ‘sweet spot’ of capital providers. Those in the former category will continue to find risk transfer challenging while others will have significantly more options available to them. Insureds should continue to review optimal risk transfer points and, as with many occupancies, by doing so may well be able to drive savings in Total Cost of Risk despite the market conditions.

Asia Pacific: Featured Industry — Manufacturing

A Look Ahead As the world returns to a state of normalcy, global demand for electronics may somewhat ease; however, the manufacturing industry overall is expected to remain strong. The World Trade Organization has raised its trade growth projection to 8% — a notable rebound from the 5.3% contraction in 2020 — and manufacturing will be at the heart of this. Insurance market conditions will remain somewhat challenging but will likely stabilize in 2021, particularly for some of the better performing risks in the manufacturing sector.

Featured Country: Australia Q1 2021 Market Dynamics

LandscapeThe economic rebound is now expected to be far better than many predicted following the opening of the States to travel and easing of restrictions. This optimism has led to a further surge in house prices with growth levels in some areas at record highs. Even as the region looks forward to a 2021 rebound, concerns remain. The strained trading relationship with China continues to intensify and has led many firms to seek new or more diversified trading partners.

In March, torrential rain and severe flooding plagued Australia’s southeast coast, displacing thousands of residents and damaging property. Communities previously devastated by severe drought and bushfires were ravaged by this latest natural disaster.

In the insurance market, GWP compared to GDP has been declining year-on-year and despite four years of remediation by insurers in the Australian market, insurers have struggled to meet return-on-equity targets. This has been driven by several factors, including the increased prevalence and scale of natural disasters in the region, increased litigation, and a low interest rate environment. None of these elements are new but the compound effect of multiple years and the universal push by capital providers for correction is driving the need for change.

As insurers await the outcomes of the COVID-19 BI test cases, appetite remains focused. Communicable Disease exclusions are being applied across the board, underwriting authority continues to shift to home office, and underwriting criteria and coverage derogations are increasingly onerous.

Looking ahead, rates will remain at elevated levels, but increases are expected to taper off in some areas as insurer appetite becomes more aligned.


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Featured ProductsCasualty/Liability Driven by rising loss costs caused by increasing litigation, broader definitions of liability, more plaintiff-friendly legal decisions, larger compensatory jury awards, rising reinsurance costs, and insurer focus on profitability, a push for across-the-board rate increases continues, with minimum pricing for excess layers under review. Deductible increases, minimum deductibles and aggregate deductibles may be required for loss-trending areas, certain business sectors, and worker-to-worker risk exposed businesses. Local markets are reviewing limits and some insurers are reducing capacity where more than $50m is provided in total limits. All insurers are focusing on limit management and in some cases requiring ventilation when layering. Insurers are reviewing wordings with a particular focus on ‘non-traditional’ General Liability coverages such as Professional Indemnity, Pure Financial Loss, and aviation exposures. Insurers are also reviewing their position in relation to cyber & data risks and introducing restrictions. Some insurers will provide limited writebacks. Problem areas continue to include sexual misconduct, bushfire liability, frequency exposed business, large worker-to-worker risk and mining, especially thermal coal and tailings dam exposures. Insurers are also looking at contractual liability and asking questions around indemnities and hold harmless clauses.

Cyber Rate increases are gaining momentum, as claims frequency and severity increases. Insurers are skilled in the management of claims, and continually improving. All insurers are monitoring capacity; most are offering no more than $10m. Some are looking to provide capacity on a ventilated structure, providing less capacity in individual layers, and possibly maximum capacity over large towers. Insurer appetite has become focused, and insurers are risk selective. As other lines of business reduce or exclude coverage for Cyber, stand-alone policies are becoming commonplace and average limits are increasing.

Employers Liability/Workers Compensation Citing the complete absence of investment returns as having a material impact on portfolio profitability, insurers remain bottom-line focused, pushing modest rate increases for well-performing risks and more significant increases for under-performing risks — either client-specific or across entire segments. In addition, insurers are seeking increases in retention levels on Excess of Loss cover which is a consequence of increasing claims costs as well as a prolonged period of flat deductibles.

Financial Lines The moderation of hard market trends is volatile and inconsistent. Preferred risks will see favorable appetite, capacity and coverages, although pricing will remain high. Non-preferred risks, such as in the mining, aviation and financial services sectors, are experiencing a very limited market, a tightening of coverage, and onerous underwriting. Some are considering reductions of Side C D&O limits, or removal of Side C, to mitigate price increases. Insurers are relying more on advice from counsel and less on independent risk analysis. New capacity in the second half of 2021 will supplement reductions in incumbent insurer capacity.

Marine All product classes continue to experience rate adjustments to stabilize insurer Marine portfolios. London insurers are pushing more aggressive increases than local insurers. Lower rate increases are expected as insurers achieve profitability goals over the next 2-3 cycles. Deductibles are under review and often used as leverage against premium increases. Local capacity is ever more limited due to reinsurance constraints and Australian Insurers remain cautious of portfolio volatility.

Professional Indemnity There is a continued push for premium increases. Insurers are navigating new exposures related to COVID and anticipating future pandemic-related exposures. There is a high actuarial focus and review of claims performance. Retentions are increasing. Capacity is stable.

Featured Country: Australia Q1 2021 Market Dynamics

Property Rate increases continue across the board, but the amount of increase varies widely based on location, loss history, construction type, and protection. Capacity is generally sufficient but is more challenged in some areas as insurers look to limit their exposure. The underwriting process has become more onerous and is taking longer. As such, starting the renewal journey early is essential. Program structures are changing, with ever more complex structures required to drive the optimal solution. Up-to-date engineering reports are critical to the underwriting process and insurers are requiring clarity around risk improvements as a prerequisite to providing coverage. As suggested in previous Aon Global Market Insights reports, there is a growing disconnect between ‘in appetite’ risks and those in more challenged occupancies. This gap continues to grow, and it is predicted that as insurers focus on portfolio increases, in some cases, an alternative insurer may have a very different view about the pricing of a risk.

Surety Australian Surety guarantees are typically unconditional and provided on-demand. Therefore, the perceived credit risk of a specific business — or an entire sector — has a significant impact on the rate and capacity offered. Strong performing risks are typically experiencing flat pricing and capacity, while less favorable risks are typically experiencing significant rate increases and capacity reductions or withdrawals. Insurer appetite will continue to focus as the full impact of COVID flows through into business financials.

Trade Credit Poor financials and an increase in insolvencies has kept risk appetite subdued. Premium increases have again risen; however, the market is expected to stabilize from Q2 onward. Poor performing risks will experience pressure to move to higher levels of risk share.

Featured Country: Hong Kong Q1 2021 Market Dynamics

LandscapeThe Hong Kong economy contracted by 6.1% in 2020, the sharpest annual decline on record; however, as Hong Kong gains control over local COVID cases, and restrictions are further lifted, economic growth of 3.5%-5.5% is expected in 2021, assuming continued government support. Given the economy’s reliance on international travel, the timing of the lifting of travel restrictions in other countries — and the permissibility of international visitors in Hong Kong — is a key economic recovery consideration. Evolving geopolitical tensions and China-US relations are creating social concerns and some ongoing unrest. Looking ahead, the strong growth of the mainland economy and improved economic situation in many advanced markets should bolster Hong Kong’s economic conditions.

Despite a reduction in claims across a number of coverage and risk types, given the current economic conditions and ongoing financial challenges, the insurance market is challenging and the gap between insureds’ and insurers’ expectations is widening. Insureds continue to seek premium reductions and more favorable terms, while insurers continue to seek rate increases, capacity reductions and more restrictive terms that are consistent with hard market and difficult economic conditions. Compromises and trade-offs are required on both sides. The underwriting process is taking longer, so it is becoming more important to start discussions early.


Casualty/Liability

Construction


Financial Lines

Marine

Products Liability


Property

Trade Credit



Casualty/Liability

Construction


Financial Lines

Marine

Products Liability


Property

Trade Credit


Insurer Attitudes

Flexible

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Aggressive

Overall Conditions

Soft

Stable

Challenging

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Broadening

Stable

Restricting

Limits

Increasing

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Abundant

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Ample

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+1–10%

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Flexible

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Overall Conditions

Soft

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Broadening

Stable

Restricting

Limits

Increasing

Stable

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Flexible

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Overall Conditions

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Challenging

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Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

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Down

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Up

Capacity

Abundant

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Tightening

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Down

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+1–10%

+11–30%


Flexible

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Aggressive

Overall Conditions

Soft

Stable

Challenging

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Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Deductibles

Down

Flat

Up

Capacity

Abundant

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Constrained

Reinsurance

Abundant

Ample

Tightening

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+1–10%

+11–30%

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Featured ProductsCasualty/Liability The market remains challenging. In the Primary space, insurers have become more selective and are reducing capacity, particularly for poor performing risks. In the Excess space, pricing is increasing significantly. Global programs with US exposure are particularly capacity constrained. Risks involving a concentration of people are being scrutinized and in-depth exposure information is required as a prerequisite for providing a quote. Insureds are exploring higher deductibles to help offset rate increases. Communicable Disease exclusions are being mandated by many insurers.

Employers Liability/Workers Compensation Given prolonged COVID-19 restrictions, employee claims relating to travel and medical expenses have notably decreased. This reduced risk environment is keeping the market stable, and insurers — keen to maintain their portfolios - are increasing rates only for poor performing risks. In some cases, such as market competition for well-performing risks, reductions have been offered by the incumbent to maintain the business. While rates are generally steady, overall premiums are decreasing due to exposure (wages) reductions.

Financial Lines Hard market conditions continue, particularly for large and complex placements. Capacity is tight and continuing to contract. Coverage terms and conditions are narrowing. Appetite for US IPO is restricted to Side A only. Significant pricing increases are being imposed, particularly on large and complex D&O programs (especially in the Primary layer) and Cyber. Local insurers are often simply following the terms of international insurers, with minimal local flexibility or influence. The volume of claims notifications has increased but it is yet to be seen if these notifications will develop into actual losses.

Marine Due to prolonged soft market conditions combined with poor underwriting results in recent years, the market has shifted. Underwriting is now more rigorous, and appetite is more focused. Modest premium uplift is sought, even for high performing risks. Capacity is sufficient but tightening; most underwriters are reluctant to expand their share/limit.

Products Pricing is stable, and insurers are generally willing to maintain expiring terms and conditions for favorable risks. Appetite is strong and there is ample capacity, leaving well performing risks with a variety of favorable options.

Professional Indemnity Market conditions have shifted over the past three quarters. Capacity has constricted. Insurer appetite is more focused. Local and regional underwriting authority has transitioned to central underwriting teams, which are significantly more rigorous and generally less flexible. Renewal business is being re-underwritten, and expiring rates are not serving as an anchor for re-pricing. Poor performing risks are experiencing some reduction in coverage terms and limits (e.g., there has been a withdrawal of unlimited aggregates).

Featured Country: Hong Kong Q1 2021 Market Dynamics

Property With business scaling back due to COVID-19, exposures across insurer books of business have decreased. To maintain existing portfolio sizes, many insurers are proposing significant rate increases. Through negotiations; however, most placements ultimately experience only a modest increase. Severe natural catastrophes have not occurred in the last 12 months, keeping losses low. As a result, deductibles are generally stable, with the exception of some increases for Natural Catastrophe. Coverage restrictions for business interruption due to COVID-19/infectious disease, Cyber, and Strikes Riots and Civil Commotion are the norm.

Trade Credit The market is focused on recovering from the COVID-related losses of 2020, even as new losses loom in the face of continued COVID-related impacts in sectors such as retail, travel, and apparel. As a result of ongoing uncertainty, insurer appetite is narrow. Underwriting is stringent, although conditions are slightly more favorable than in 2020. Rates have moderated somewhat, but increases remain the norm.


Overall

Automobile

Casualty/Liability

Cyber


Financial Lines

Marine

Property

Trade Credit

Featured Country: Japan Q1 2021 Market Dynamics

LandscapeThe Japanese economy continues to experience severe negative impacts from COVID-19 related restrictions. While there are early signs a recovery is on the horizon with support from the Emergency Economic Measures, a full recovery is likely well in the future. Economic growth in 2021 is expected to be approximately 4.0%.

Although claim payments for business interruption caused by COVID-19 have been limited in Japan and local insurers’ 2020 profits have been stable due to a general reduction in exposures and claims, the trend of rate increases continues due to the impact of natural disasters that occurred in 2018 and 2019.

Rates

Down

Flat

+1–10%

+11–30%

>+30%

Overall Conditions

Soft

Stable

Challenging

Capacity

Abundant

Ample

Constrained

Insurer Attitudes

Flexible

Prudent

Aggressive

Limits

Increasing

Stable

Decreasing

Deductibles

Down

Flat

Up

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Broadening

Stable

Restricting

Reinsurance

Abundant

Ample

Tightening

Featured ProductsCasualty/Liability Pricing is stable, and insurers are generally willing to maintain expiring terms and conditions, especially for favorable risk types.

Cyber Some insurers have become more selective and prudent, especially for risks with higher ransomware exposure. Such risks are experiencing a reduction in limits, an increase deductibles, and coverage restrictions.

Financial Lines International insurers (excluding Japanese local insurers) are increasing rates and tightening capacity. There is very limited appetite in the international D&O marketplace for new business for organizations who experienced negative impacts from COVID-19.

Marine Japanese local insurers are still keen to write Japanese Marine business, and the market is favorable for such risks. On the other hand, Stock Throughput – especially risks with high stock exposures – is challenging, and underwriting is more rigorous across all insurers – local and international.

Property As a result of the market corrections that occurred in October 2019, and January 2021, insurers continue to seek rate increases across the board, regardless of loss experience or risk complexity, with earthquake risk experiencing the most significant increases. While rates are increasing, coverage and capacity remains stable.

Featured Country: Japan Q1 2021 Market Dynamics


Overall

Automobile

Casualty/Liability

Cyber


Energy

Financial Lines

Property


Featured Country: Malaysia Q1 2021 Market Dynamics

LandscapeWhile some parts of the region have returned to minimally restricted pre-COVID norms and activities (including travel), Malaysia is recording all time highs in the number of recorded cases as the race to vaccinate accelerates. Despite that, the country is generally optimistic about growth in the second half of 2021, based on a stronger-than-expected first half of the year. As other economies recover from the pandemic, global and regional trade is surging – and demand for Asian exports is increasing, creating momentum for the manufacturing sector. In Malaysia, the manufacturing industry has further strengthened its position (especially in rubber, plastic and electronic manufacturing) from last year, while the retail, automotive, healthcare and construction businesses are not performing as well.

While the end seems to be in sight, the ultimate financial consequences of COVID-19 and related restrictions, as well as their impacts on risks, exposures, and claims, remain difficult to estimate and quantify. Insurer attitudes are conservative, and the underwriting environment can be challenging. Information requests are getting more detailed and onerous. Often insurers are unable to finalize quotes until all requests - for detailed information and compliance with risk control recommendations - are satisfied. This can lead to last-minute deviations from expected terms. Quotes are generally provided with a 30 day expiration. Some insurers are withdrawing from poor performing spaces – or those anticipated to perform poorly in the future. Coverage derogations are a growing concern as insurers impose across-the-board clarifications and exclusions, particularly related to Silent Cyber, Infectious Disease and Contingent Business Interruption. Insurers are transitioning to coinsurance arrangements to address ransomware risks.

Rates

Down

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+11–30%

>+30%

Overall Conditions

Soft

Stable

Challenging

Capacity

Abundant

Ample

Constrained

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Flexible

Prudent

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Limits

Increasing

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Broadening

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Restricting

Reinsurance

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Tightening

Featured ProductsAuto Automobile risks are still tariff regulated; hence, pricing and capacity remain stable. Appetite is strong and coverages offered are widely standardized.

Casualty There is ample capacity in the market. Underwriting is rigorous, and more detailed underwriting information is being required, particularly as a prerequisite for completing a proposal. Quotes are being withheld if all queries are not addressed. Pricing and coverage terms are generally stable with some exceptions based on industry. Energy risks are experiencing the most challenging environment.

Cyber Most insurers are in a consolidation phase and have limited their capacity on any single risk to USD10-15 Million (versus USD20 Million in the past). Pricing for industries such as Financial Institutions, Healthcare, Telco’s and Professional Service firms has increased significantly, and there is an ongoing push from insurers to increase deductibles and retentions. The Cyber claims environment has changed materially from a year ago, with an influx of claims being reported and paid.

Employers Liability / Workers Compensation In Malaysia, this coverage is no longer compulsory but is purchased as needed. Hence, demand is relatively low except where contractually required. Pricing and capacity remain stable with the key exception of offshore risks where only a small number of insurers are prepared to offer coverage.

Energy Prior to the pandemic, capacity was already very limited for energy risks. Capacity is now tightening further. In addition, rates and deductibles are increasing significantly, and insurers are very cautious toward high-risk industries such as paper, wood, plastic and chemical without hesitating to decline such risks. The few insurers continuing to write in this space are doing so on their terms – which are very limited.

Financial Lines Most insurers are in a consolidation phase and have limited their capacity on any single risk to USD10-15 Million (versus USD20 Million in the past). Similar to Cyber, pricing for high-risk industries such as Financial Institutions, Healthcare, Telco’s and Professional Service firms has increased materially, and there is an ongoing push from insurers to increase deductibles and retentions. Losses for D&O, Professional Indemnity, and Medical Malpractice continue to escalate, and the claims environment is becoming more complex.

Property As Malaysia is still in the liberalization stage, rating, coverage & capacity remains flat and stable for those risk falling within the tariff category, as well as package products. For large and complex risks which fall outside the tariff category, rates are escalating, coverage is tightening, deductibles are increasing, and capacity is contracting, regardless of risk or loss profile.

Featured Country: Malaysia Q1 2021 Market Dynamics


Overall

Automobile

Aviation

Casualty/Liability

Construction

Cyber

Financial Lines

Property

Featured Country: Philippines Q1 2021 Market Dynamics

LandscapeThe Philippines’ Q1 economy continued its downward trend with GDP falling by 4.2%, marking the fifth consecutive quarter that the country experienced a negative GDP growth rate. The main sectors contributing to the Q1 GDP decline were Construction (-24%), Other Services including Recreation and Entertainment (-38%), and Real Estate (-13%). Positive sentiments of an economic rebound in Q2 were quelled when the country transitioned to a stricter lockdown in the latter part of Q1 due to a surge in COVID-19 cases coupled with limited vaccine supply. But as the quarter came to a close, optimism emerged when the COVAX facility supplemented the existing Sinovac vaccine supply with almost 500k doses of Astra Zeneca.

The local insurance market remained cautiously competitive amidst the backdrop of a hardening international market cycle, and local insurer appetite remained strong for risks eligible to be covered by local capacity. Continued favorable market conditions are critical to insureds looking to manage insurance spend as part of their overall balance sheet management efforts during this tough economic period. Advance preparation and submission of detailed underwriting information are still key to successfully navigating the current market conditions.

Rates

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+1–10%

+11–30%

>+30%

Overall Conditions

Soft

Stable

Challenging

Capacity

Abundant

Ample

Constrained

Insurer Attitudes

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Aggressive

Limits

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Featured ProductsAuto The extended lockdown conditions have resulted in favorable Auto claims experience thereby prompting insurers to offer competitive rates in an effort to grow in a market that is experiencing reduced exposures. Until the economy recovers, mobility increases, and new car sales increase, rates are expected to remain competitive.

Aviation Rates are increasing, capacity is tight, and underwriting is selective. The market is driven by international market trends due to capacity restrictions of local insurers.

Casualty Local market capacity remains sufficient; however, insurers are beginning to tighten coverage terms and insert clarifying language to exclude silent coverages, particularly related to Cyber, Infectious Disease, Terrorism and Strikes, Riots & Civil Commotion. Rates are ticking up.

Construction Local market capacity is limited, driving most placements into the international market. This means that most construction placements are facing the challenging market conditions of the international market such as rate increases, coverage restrictions, and rigorous, selective underwriting.

Cyber While there is a growing need for Cyber products in the country, local capacity remains constrained. Hence, rating and underwriting approaches are generally following the international landscape – with higher pricing and tighter coverage terms, particularly for ransomware.

Financial Lines Capacity from local markets is not substantial. Generally, risks are underwritten by regional insurer counterparts, meaning that rating and underwriting approaches are driven by the international market. In Q1, rate increases were generally modest, with slightly higher increases for complex risk types. International capacity remains tight but sufficient. Underwriters are focused on insureds’ efforts to manage pandemic-related risks.

Property There is a modest upward trend in rates driven primarily by an increase in treaty and facultative reinsurance costs. Coverages, limits and deductibles are generally stable; however, in some cases, insureds are exploring policy changes as a mechanism for offsetting premium increases. While capacity is stable for most occupancy classes, there is a significant contraction in available capacity for sectors in thermal power, coal-related business and mining. In line with the hardening stance of their international counterparts, local insurers remain prudent in their underwriting approach and have imposed exclusions on Cyber as well as Infectious Disease related exposures. Current market conditions require that the renewal process start early with complete underwriting information, risk improvement details and 5-year loss history to ensure timely completion of the placement, particularly for capacity-driven complex property risks.

Featured Country: Philippines Q1 2021 Market Dynamics

Featured Country: Singapore Q1 2021 Market Dynamics

LandscapeWhile the economy contracted 5.4% in 2020, it is expected to grow 4% to 6% in 2021, despite a slight contraction in Q1. Sectors with a positive 2021 outlook include manufacturing, construction, and services, while there is a longer recovery horizon for hard-hit sectors like hospitality and travel. COVID-19 is under control, the economy is reopening, and social restrictions are easing. The vaccine rollout is going smoothly — with the majority of people expected to be vaccinated by the end of 2021.

The insurance marketplace continues to firm as the balance sheets of insurers continue to be pressured. A return to profitability remains the top insurer priority and driving force for underwriting decisions. The gap between local and international market pricing and attitudes is widening with local insurers remaining competitive and flexible while international insurer pricing continues to escalate, and underwriting stances are rigid. COVID-19 uncertainty remains high, and underwriters are scrutinizing risk. Regulator intervention in COVID-19 claims is complicating the claims landscape.


Automobile

Casualty/Liability

Construction

Crisis Management


Energy

Financial Lines

Marine

Property

Surety

Trade Credit



Automobile

Casualty/Liability

Construction

Crisis Management


Energy

Financial Lines

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Property

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Trade Credit


Insurer Attitudes

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+1–10%

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Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

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Overall Conditions

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Overall Conditions

Soft

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Featured ProductsAutomobile As a result of many months of reduced ridership and fewer vehicles on the road, insurers experienced favorable claims performance and underwriting profits for 2020, following an underwriting loss in 2019. As restrictions are lifted and normal traffic patterns resume in 2021, insurers — keen to retain market share - are keeping pricing in check and the environment is competitive, particularly for existing business.

Casualty/Liability Insurers continue to seek modest rate increases where possible; however, to remain competitive, insurers are offering flat pricing to highly favorable risks such as non-complex, loss-free insureds with no overseas exposures. Underwriting scrutiny is high, and insurers are selective, especially with regard to coverage extensions such as Pure Financial Loss and Professional Indemnity within the General Liability policy. Insurers remain cautious on where they deploy capacity, particularly related to placements with exposures in litigious countries. Communicable Disease exclusions continue to be imposed.

Employers Liability/Workers Compensation In general, premiums continue to rise, driven not only by insured-specific risk profiles and loss history, but also by changes in the new Work Injury Compensation Act of 2019 (WICA) which increases insurer responsibilities. However, highly favorable risks may see flat pricing. Some poor performing risks have experienced insurer withdrawal. Insurers — partially driven by Ministry of Manpower mandates - are stringent in their underwriting approaches and requirements, seeking a balance between their underwriting guidelines and WICA requirements. Coverage terms are being clarified and/or restricted, particularly for communicable disease.

Financial Lines Underwriters are pushing for rate correction, especially for risks not adjusted for the prior period. Underwriting has become more detailed and rigorous. Capacity is constrained; many insurers are not considering limits greater than USD 10 million. Appetite is narrowing, with reduced interest in specific classes with higher risk profiles such as aviation, hospitality and healthcare. Insurers are applying new, mandatory exclusions for Cyber and Crime, citing new global underwriting guidelines and treaty requirements. Most insurers remain focused on a return to profitability; however, a small portion of the market is starting to have an eye toward growth.

Marine The market is volatile, with price increases ranging from single digit to 100% and higher. Insurers are imposing deductible increases. Local insurers have become more rigorous in their underwriting approach, often requiring onerous, detailed information. Capacity remains sufficient.

Property As the market continues to undergo corrections, rate increases are sought, even for well-performing risks, although the size of the increase has moderated from last year, likely driven by no Natural Catastrophe losses in 2020. There is some capacity constriction on large, complex risks. Insurers remain cautious and are stringent in their underwriting approach. In-depth, quality submissions are critical to achieving favorable outcomes. Communicable Disease and Cyber exclusions continue to be imposed.

Surety Temporary governmental relief measures have supported the fulfillment of business’ contractual obligations, keeping losses lower than they would have otherwise been. But due to increased risk profiles from continuing economic uncertainty, the Surety market remains challenging. Pricing is up for insurance and reinsurance. Insurer underwriting scrutiny is intense. Underwriters are very selective.

Trade Credit Significant rate adjustments were made in 2020, so — with the exception of risks with deteriorating profiles — there is some moderation happening now. Insurers remain selective and stringent in their pre-screening and credit evaluation. Underwriters are cautious in their underwriting and are asking more questions related to trade, sales volume, rationale, etc. Limits are also stabilizing as most were reviewed and adjusted last year. While there were more overdue premiums reported, they were subsequently paid off.

Featured Country: Singapore Q1 2021 Market Dynamics


Overall

Automobile

Casualty/Liability

Construction

Cyber

Energy

Financial Lines

Marine

Power


Property


Trade Credit

Featured Country: Thailand Q1 2021 Market Dynamics

LandscapeIn 2020 GDP fell to -6.1% due to the impacts of COVID-19. Tourism collapsed, many businesses closed, and most major projects were either delayed or cancelled altogether. The forecast for 2021 is 2% growth; this estimate may be impacted by the third wave of COVID-19 which began in March. The work-from-home recommendation for businesses in Bangkok and the surrounding areas is now scheduled to continue through the second quarter of the year. In addition, the World Bank reports that prolonged political uncertainty and concerns related to the cohesiveness of the military-led coalition government may continue to impact investor and consumer confidence.

The challenging market conditions of 2020 are continuing into 2021, particularly for larger and complex risks, Marine and Professional Indemnity placements, and risks in the energy, power and construction sectors. The market is more favorable for smaller, non-technical risks which require no international reinsurance.

The health market is competitive following headcount reductions and better-than-expected loss experience.

Rates

Down

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+1–10%

+11–30%

>+30%

Overall Conditions

Soft

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Capacity

Abundant

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Decreasing

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Broadening

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Featured ProductsAuto The market – representing about 60% of the P&C market in Thailand – is stable overall. Appetite is broad, and capacity is sufficient. Individual vehicles are tariff rated, and fleets are experiencing some discounts.

Casualty The local market landscape remains stable; however, placements requiring international capacity are experiencing mandatory rate and deductible increases.

Cyber There is still appetite and capacity for Cyber risks; however, pricing has increased notably following poor loss experience globally. More and more organizations are considering Cyber coverage although some continue to see it as a discretionary purchase.

Financial Lines The market is challenging, with underwriters mandating significant premium and deductible increases as well as coverage restrictions.

Property For large, complex risks, the market remains challenging, particularly for energy, power and construction risks. Conditions are more favorable for local, non-technical risks which require no international reinsurance.

Featured Country: Thailand Q1 2021 Market Dynamics


Overall

Automobile

Casualty/Liability

Construction

Cyber


Financial Lines

Property


Trade Credit

Featured Country: Vietnam Q1 2021 Market Dynamics

LandscapeVietnam remained economically resilient during 2020; however, like most countries globally, it experienced a negative impact on GDP – seeing a drop to about 3%. Assuming further restrictions can be avoided, Vietnam is expected to return to pre-COVID GDP growth of 6-7% in 2021. Foreign Direct Investment rebounded by 18.5% year-on-year but remains below the 2019 level. While Tourism and Transportation continue to struggle, Energy (especially Renewable Energy), Manufacturing, and e-Commerce are attracting investment and maintaining a positive growth outlook.

While the country’s response to the public health crisis was deemed successful, only about 1% of the (prioritized) population has been vaccinated. Additional sources of vaccine - including locally-developed solutions expected in 2022 – will support the vaccination requirements of the broader population.

The local Property & Casualty insurance market remains stable while risks placed in the international market are experiencing more challenging conditions. Financial Lines and the growing renewable energy market, in particular, are closely tied with the international market and have seen difficult underwriting conditions and rate escalation for both new and renewal business. In 2021, claims have remained benign, following numerous natural catastrophes in 2020.

Rates

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+1–10%

+11–30%

>+30%

Overall Conditions

Soft

Stable

Challenging

Capacity

Abundant

Ample

Constrained

Insurer Attitudes

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Limits

Increasing

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Decreasing

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Broadening

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Restricting

Reinsurance

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Featured ProductsConstruction For risks with insured values exceeding USD33M that are not subject to local tariffs, coverages, limits and deductibles remain generally stable; however, pricing is up modestly.

Cyber Appetite and capacity is constrained for new placements while renewals are generally experiencing stable conditions. Ransomware is being sub-limited across all placement types and a separate underwriting questionnaire is required. Capacity is limited for payment gateway activities.

Financial Lines The D&O market is challenging; significant rate and deductible increases are the norm. For Professional Indemnity, the market is relatively stable. The Crime market – particularly for Financial Institutions – is difficult, with constrained capacity, material rate increases and mandatory limit reductions, even for renewals. Crime market conditions are driven primarily by international insurers. There has been a refocusing of appetite and some insurers have withdrawn from this space.

Property For risks with sums insured exceeding USD43M that are not subject to local Compulsory Fire & Explosion Insurance tariff regulations, the local market remains competitive while the international market is more difficult. Challenging risk types such as garment & textile, shoes, and furniture are experiencing rate and deductible increases and capacity constrictions, as well as some mandatory limit decreases.

Trade Credit Conditions overall are challenging – with rate increases and limited competition. With only a few players in this space, and the recent withdrawal of a key insurer, capacity is very constrained.

Featured Country: Vietnam Q1 2021 Market Dynamics

Geography Trends:Latin America

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The region is faced with volatility and uncertainty: rising COVID infection rates and erratic government responses, the most significant GDP contraction of any region in the world, prolonged social tensions, and heightened political instability as the region anticipates upcoming elections in Argentina, Chile, Ecuador, El Salvador, Honduras, Mexico, Nicaragua and Peru.

While Latin America — with its need for infrastructure improvements related to transportation, logistics, energy, housing, and power — remains attractive to global investors, political volatility continues to dampen confidence, particularly for long-term investments. Economic, political, and social conditions are expected to slowly improve over the course of 2021 and 2022, but there is widespread uncertainty related to the course and timing, as the region awaits much needed structural reforms and a reprieve from the impacts of COVID-19.

Latin America: Regional Landscape

Insurance Market & Key Risks A challenging market environment continues With COVID-19 still raging in some countries and restrictions in place, there is significant uncertainty in the market that, combined with ongoing insurer profitability challenges across the region, is creating a difficult market environment with rate increases, capacity contractions, and re-focused appetite. Areas most impacted include: Directors & Officers, Marine, Energy, Power, Cyber, Construction All Risk, Surety and some Property risks.

Some pockets of risks remain less affected Placements for SME risks, Marine Cargo, and Surety continue to enjoy expanded appetite and a more favorable environment as market competition in these areas is high.

Further capacity constraints could lie ahead The local reinsurance market is rewriting some books of business which could bring capacity constraints in the mid-term.

Referrals and escalations are becoming more common The underwriting process is becoming more stringent and conservative, and more risks are being referred to central teams. This is leading to delays and creating complexity.

Concern is growing regarding ESG issues There is heightened interest in ESG matters, and more businesses are engaging Aon to explore related risks and risk transfer options.

Claims Environment Escalations and slow payments have become the norm Insurer personnel are escalating decisions that previously would not have been escalated, adding more touchpoints to the process and requiring continuous communication to ensure no details are lost. As the region’s economy continues to struggle, the effects of the pandemic are expected to continue throughout 2021, making the need for swift claim settlements for clients more important than ever before.

Technology is a key enabler Insurers are migrating to digital environments which will facilitate and speed claims processing; however, the digital transition has been slow.

Aon advocacy is key in today’s environment Claims advocacy, especially for large and complex claims, has become invaluable in helping insureds avoid, manage and mitigate contentious claims

Tips for Clients Develop a robust marketing strategy Establish a timeline with an early start. Plan to access many markets. Proactively identify alternatives and assess their short- and long-term costs and benefits.

Prepare for insurer discussions Be prepared to differentiate your risk. Work with Aon to pre-define risk retention and risk transfer targets. Have clear goals. Overcommunicate the details of your risk management processes, particularly related to cyber, supply chains, and communicable disease. Risk assessment and proper quantification are key.

Make informed decisions Use data and analytics to understand the current market conditions, including pricing and insurer performance.

Leverage Aon during the claims process Report claims promptly and leverage Aon to provide advice and advocacy during the processing of your claims.

Latin America: Market Overview


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Latin America: Q1 2021 Market and Claims Dynamics

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Quantum Acceptance

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Latin America: Q1 2021 Market and Claims Dynamics


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Industry Issues As GDP decreased significantly across the region in 2020 so too did construction activity, which saw a 16% contraction — the highest globally, with Panama, Colombia and Bolivia experiencing the most notable impacts while Uruguay, on the other hand, managed to grow slightly. Despite major industry slow-downs, some important infrastructure projects either began construction in 2020 or are about to begin now, mostly supported by foreign capital investment, primarily Spanish and Chinese investors. Aside from these projects, many others remain on hold or have significantly slowed. With a massive investment in infrastructure needed, global investors consider Latin America a strong opportunity, although prolonged political volatility has affected investor confidence.

Market Conditions The insurance market for construction risks has, since 2019, experienced incremental rate increases, constrained capacity, and coverage restrictions; however, conditions are starting to moderate somewhat. Because the number of small to mid-sized projects has significantly declined during COVID-19, local insurer appetite for these risks is strong and market conditions are more favorable, with generally flat pricing. Larger projects requiring significant facultative reinsurance capacity are experiencing relatively modest rate increases. Underwriting scrutiny is high across the board; however, and the process is taking longer. Risk differentiation is key, and attractive risks are receiving significantly more favorable treatment than challenging risk types such as hydro power plant and projects with prototype equipment. The few Chinese reinsurers who have been approved to operate in Latin America have a strong appetite for reinsuring projects in the region funded by Chinese investors.

Latin America: Featured Industry — Construction

A Look Ahead According to the Global Data Construction Outlook, Latin America’s construction output is expected to partially recover in 2021 to 7.7%, and in 2022, to 5.1% — with the most significant growth in Panama, Chile and Bolivia, and less growth in Ecuador, Brazil and Uruguay. Insurance market conditions will remain stable, and insurers will require maintenance programs for delayed projects as a prerequisite for insurance.

Industry Issues Due to the impacts of the global pandemic, 2020 was a challenging year in the private equity space, with notable reductions in global and regional M&A and Private Equity activity, particularly in the first half of the year, with a partial recovery seen in the second half. Activity has rebounded in 2021 so far, with a 157% increase in the disclosed value of transactions; however, there was a 6% reduction in the number of deals compared to the same period in 2020, according to Transactional Track Record data.

Market Conditions Aon has provided consultancy services to a number of large transactions in the region, with an emphasis on risk and insurance advisory. In Q1, the Transaction insurance market saw a significant increase in local demand from M&A and PE players. Although the number of local insurers in this space remains limited, there has been a notable increase in appetite from insurers in other regions for insurance related to transactions in Latin America, as compared to 2020. Overall market conditions are becoming more favorable, although still slightly challenging.

Latin America: Featured Industry — Private Equity

A Look Ahead LATAM countries are generally behind some other parts of the world in terms of vaccination of the population which is seen as one of the key elements for economic recovery. As the recovery process strengthens throughout 2021, the number of transactions is expected to gain further momentum. The significant amount of committed but unallocated capital on PE firms’ hands (i.e., dry powder), together with reduced global interest rates, is expected to drive the regional market rebound.

Industry Issues 2020 was an unprecedented year. Drops in demand for fuel, gasoline and diesel caused by COVID-19 related restrictions in air travel and public transportation drove oil prices to all-time lows. The energy sector had already experienced some decline over the past decade and the pandemic accelerated these challenging conditions for some contractors and operators already struggling to stay afloat. The industry is now showing signs of recovery as vaccination campaigns gain momentum and restrictions ease in some geographies around the world. In most of LATAM; however, vaccination campaigns have not been as effective, and economic recovery has been slower. Major economies within the region like Mexico and Brazil, two of the biggest fuel consumers in LATAM, will struggle in 2021 to get even close to pre-pandemic transportation and fuel consumption levels, playing a major role in the outlook for the energy sector across the region.

Market Conditions Following an acceleration of Upstream rate increase in the second half of 2020, rate increases now range from modest to significant, depending on line of business and risk profile. Theoretical capacity is around USD 8.2 billion; working capacity is USD 6.2billion. The market continues to see Upstream losses from the 2020 Atlantic Named Windstorm season. Attritional losses have led to poor results in the following sub-classes: onshore/midstream PD; onshore OEE, geothermal and salt water disposal.

The Downstream sector experienced a 131% loss ratio for the period 2016 to 2020, prompting significant price escalation which continues but is starting to show signs of stabilization. Generally, Q1,2021 renewals saw less harsh conditions than in Q1, 2020. New capacity is entering the market, offsetting capacity that is withdrawing.

Pricing in the Offshore Construction market is increasing, reflecting capacity contraction in the most competitively priced trenches and uncertainty around premium volumes in this class. Deductibles and coverage remain unchanged. Capacity stands at around USD 3.5 billion. With a limited local market, local insurers typically act as cedants, without any retention locally. The fronting fee continues to vary across countries in the region, but in general ranges between 4–10% depending on the size and type of risk.

A Look Ahead The new US Administration is expected to play a major role in the future of the energy sector globally and in the region, as evidenced by actions taken almost immediately. First, the Keystone Project, which was a major pipeline running from Alberta to Nebraska was canceled, citing its major environmental implications. Second, the US re-joined the Paris Accord, committing to rebuilding lost momentum and strengthening the Agreement’s objectives to mitigate global warming and reduce greenhouse gas emissions. The US also intends to implement additional taxes on foreign-produced products which create high emissions during their production. This could have a direct impact on countries such as Brazil and Mexico which import large quantities of these

“high emissions” products into the US. The transition to green and renewable energy is not a matter of if but when, with most countries around the world aiming to switch from fossil fuels to cleaner energies by 2050. LATAM and the big Energy players will need to adapt to this new reality.

Latin America: Featured Industry — Energy

Featured Country: Argentina Q1 2021 Market Dynamics

LandscapeJust months after Argentina reopened its battered economy, COVID-19 cases grew to a record high, forcing the country to shift into a new round of restrictions. The country is now ramping up vaccination efforts, even as questions grow over the supply of vaccine. While there are early signs of an economic recovery, indications point to a slow rebound, even after the country reopens, given the country’s high inflation rate, and low confidence in Argentina’s policies or path to recovery.

Overall, the insurance market is relatively stable; however, in light of challenging economic conditions, insureds’ budgets are decreasing, forcing price-driven decision-making. Many insureds are trading off coverage terms, limits and deductibles to achieve premium stability. Capacity is sufficient with the exception of Energy risks, and Financial Lines, which are experiencing a significant contraction.


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Featured ProductsAutomobile Exposures and losses decreased during 2020, and the current market is stable and competitive. Pricing and coverage terms are competitive and insurer appetite is strong, with an abundance of insurers in this space.

Aviation The market is challenging but has become more stable. Pricing remains high, but rate increases have slowed. Capacity remains constrained.

Casualty/Liability Challenging market conditions continue. Rates are increasing. Terms and conditions are contracting. There is limited capacity for medium and large risks, requiring greater reliance on facultative reinsurance. Insurer behaviors are consistently restrictive: there is limited underwriting flexibility, coverages are not being extended, and requests to remove restrictions are not being approved.

Construction Now that some construction activities have resumed following the COVID-driven 2020 slow-down, insurance market pricing has escalated, and terms and conditions are becoming more restrictive.

Energy Market conditions are challenging, with rates increasing, terms and conditions restricting — including new exclusions related to COVID-19 — deductibles increasing, and capacity constricting.

Financial Lines Pricing is up across all lines of business, particularly for risks with NYSE exposure. There is little risk appetite for Argentinian risks, particularly for primary layers.

Power Market pricing continues its upward trend, which is expected to continue throughout 2021. There has been some capacity withdrawal, although sufficient capacity remains available.

Property Given that most capacity is coming from global reinsurers, local insurers are generally following the trends of international markets. Rate increases remain significant. Coverage restrictions are being introduced. Insurers have withdrawn from some loss-active risks. Limits are stable.

Surety The market is stable, with abundant capacity, moderate pricing, and favorable terms and conditions.

Featured Country: Argentina Q1 2021 Market Dynamics

Featured Country: Brazil Q1 2021 Market Dynamics

LandscapeIn 2020, the Brazilian economy suffered its largest annual recession in decades, contracting by 4.1%. All major sectors experienced a contraction except agribusiness, which maintained its growth trajectory of 2% annually. Government support late in the year provided a much-needed lifeline for many businesses. The economy is expected to grow by 3.5% in 2021; this has already been adjusted downward and major risks to reaching that expectation continue to unfold. The second wave of COVID-19 is wreaking havoc: infection and death rates are at their highest point since the start of the pandemic, nearly every state is at or near ICU capacity, and the vaccines have been slow to roll out — with only about 2% of the population being vaccinated so far. The Brazilian government is under significant pressure from economists and the public at large to accelerate the vaccine rollout and adopt tougher restrictions to stop the further spread of COVID-19. While the national government remains reluctant to impose restrictions, many states have reactivated them, which has led to social unrest and anti-social distancing demonstrations by people who fear the financial consequences of further mandates. Looking ahead, to help reduce financial impacts on the most vulnerable, the job and income protection scheme which saved 11 million jobs in 2020 will remain in place. Crucial structural reforms remain a key priority.

The insurance market landscape remains challenging. Local market conditions tend to be more favorable than in the international market. Underwriting authority continues to shift to central decision-makers who are not as familiar with the local risk environment. Pricing is elevated — the extent of which varies widely based on insurer, line of business, and risk profile. Recovery from COVID-19 impacts will, over the course of 2021, reduce uncertainty, which is expected to reduce volatility in the current market conditions.


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Featured ProductsCasualty/Liability The local market is transitioning, and as a result, is somewhat volatile. Pricing is flat to modestly up. Capacity is generally sufficient. The volatility is stemming primarily from insurer underwriting practices, which have become difficult to anticipate. Some local underwriters have retained authority and are showing broad appetite and flexibility. Others are more conservative and even declining to quote some risk types; quotes that are provided often include coverage restrictions. Given the long tail nature of some Casualty risks, as claims continue to mature, there will likely be greater scrutiny on coverages and limits.

Financial Lines Local insurers have followed the same trends as international insurers, introducing more restrictive terms and conditions and in some cases declining to write D&O altogether. Capacity is limited. Insureds with favorable risk profiles may receive favorable pricing but are not seeing a notable improvement in terms and conditions. Side C deductibles have increased significantly for companies with US exposure and rates have risen sharply. Due to new regulation, insurers are more concerned with Cyber exposure in D&O policies and there is a tendency to exclude it. As significant hard market conditions have been experienced in this space for 2-3 renewal cycles, some stabilization is expected for the next cycle. Well-planned risk transfer strategies and robust underwriting details are critical to ensure the best possible outcomes.

Marine Following reinsurance treaty renewals, the market has transitioned and is now more challenging. Hull rates are reaching double digit increases for renewals and even extensions, while rates for P&I and other Marine Liability coverages are seeing more modest, but widespread, increases. Underwriting authority has shifted to central decision-makers. Pandemic exclusions are being broadly applied, except on Mutual coverage offered by P&I Clubs. Shipping and offshore activities and related exposures remain stable as they did not suffer material COVID-19 impacts. A new law may soon be enacted to promote Cabotage which will allow shipowners to claim reimbursement for Hull insurance under a local Marine Merchant Fund.

Property In general, the market has become notably more challenged, but conditions vary widely by insurer and risk profile. Very few insureds have gone unscathed by market conditions, whether in the form of increased rates, increased deductibles, or a tightening of terms and conditions. Capacity remains generally sufficient through local insurance or reinsurance, with the exception of energy and high hazard risks where local capacity is an issue, forcing insureds to leverage the more volatile international market. Risk quality, risk management maturity, claims history, occupancy/activity, and the need for reinsurance are critical factors in determining the market conditions each insured will experience.

Trade Credit Concern amongst insurers related to the impacts of COVID-19 restrictions remains high. Many are anticipating a potential wave of claims in 2021, likely to arise after companies and people lose government support. Underwriters remain cautious on limits, which remain lower than pre-COVID due to ongoing uncertainty. Insurer risk appetite remains conservative; insurers are limiting current exposure with existing insureds, and have narrowed their appetite for new business. Looking ahead, there are signs of expanded appetite in sectors that are anticipating an early recovery from Wave 2. Limit increases are expected in 2021, as uncertainty related to how COVID will play out decreases.

Featured Country: Brazil Q1 2021 Market Dynamics


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Featured Country: Chile Q1 2021 Market Dynamics

LandscapeOn the heels of the social unrest that dominated 2019, 2020 proved a very difficult year for Chile. The impacts of the pandemic created health and financial struggles on a personal level, and stressed the sanitary system and general economy at the national level. 2021 ushered in a new wave of hope as the vaccination rollout achieved widespread success – with more than 50% of the population already vaccinated - and anticipation of an economic rebound.

The insurance market is becoming more dependent on international reinsurance, particularly for large and complex risks. Local insurers are following the lead of international insurers by raising prices and tightening coverage terms. Like the 2020 environment, the 2021 environment remains challenging, although it has stabilized somewhat and the trend of major rate increases has decelerated.

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Featured ProductsAutomobile The COVID-19 related restrictions of 2020 led to favorable loss ratios. This situation, combined with a highly competitive market with many players, has led to stable pricing, conditions and deductibles.

Casualty The market is stable, primarily driven by local capacity, which plays an important role to local risks. Larger and more complex risks requiring facultative capacity are experiencing more challenging pricing conditions, although deductibles, limits and coverage terms remain stable.

Cyber Most local risks can be covered by local insurers which are offering stable terms and conditions. Larger risks requiring facultative reinsurance are facing a rigorous underwriting process which requires detailed information. This process often results in less favourable terms and conditions and an increased likelihood of declination (than local market underwriting).

Financial Lines Pricing is up across all lines of business, particularly for risks with NYSE exposure. In 2020 Financial Lines insurers experienced severe capacity reductions, heightened risk selectivity, widespread coverage restrictions and significant price increases. In 2021, conditions have not materially improved. While the market has become slightly less volatile, pricing, capacity and coverage terms remain challenging.

Property Local insurers are now following the lead of international insurers – requiring rate increases and offering limited capacity. There is; however, less volatility than in 2020.

Featured Country: Chile Q1 2021 Market Dynamics

Featured Country: Mexico Q1 2021 Market Dynamics

LandscapeThe country is facing multiple crises: an economic recession the likes of which have not been experienced since the great depression, rising COVID-19 infection rates, a humanitarian crisis as more and more US-bound, asylum-seeking migrants undertake life-threatening journeys, and natural disaster conditions as this year’s La Nina weather phenomenon has led to widespread drought conditions, and dozens of wildfires are burning in more than 20 states across the country. Despite these difficult circumstances, the country remains generally optimistic about the future. Foreign demand and exports remain high, and many workers are returning to work. The COVID vaccine rollout is underway. The $1.9 trillion US stimulus package and a heightened local and regional focus on infrastructure reforms are expected to have a positive impact on the Mexican economy.

In the insurance market, underwriters are focused on technical results over growth and have become more selective. There is heightened scrutiny and ongoing requests for information throughout the underwriting process, particularly for Property and Liability. In general, appetite has contracted; however, insurers are demonstrating strong interest and flexibility within their core risk appetite. Capacity is sufficient; however, it is contracting for specific risk types such as beachfront property, mining and pharma. Exclusions for pandemic and cyber are being imposed by most Insurers. Local insurers will renew their treaty capacity in Q2, and it is expected that the local market will continue to follow global market trends.


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Featured ProductsAutomobile Exposures and losses have decreased during COVID-related restrictions driving market pricing down at a time when many insureds — facing financial strains — need it most. Overall, market conditions are competitive and insurer appetite is strong.

Casualty/Liability The market is challenging, with significant rate increases for specific lines of business and risk types such as Pharmaceuticals, accompanied by capacity restrictions. However, coverage terms and conditions remain favorable and stable.

Construction Public infrastructure investment has continued throughout the pandemic; however, many private sector investments were deferred, and some projects remain on hold. Underwriters are scrutinizing risks and requiring detailed information. There continues to be capacity from local insurers; however, international insurers have restricted capacity. In the Surety space the capacity provided by both local and global Insurers is limited and the underwriting process has become more stringent.

Featured Country: Mexico Q1 2021 Market Dynamics

Property The market is modestly challenging. There is greater underwriting scrutiny, and insurers are requiring detailed engineering analysis and confirmation that risk control recommendations have been implemented prior to quoting. While capacity is sufficient, some insurers are not deploying it fully unless there is complete, robust underwriting information. Many insurers previously writing a full layer are now looking for coinsurer(s) and are avoiding taking the lead position. Pandemic and COVID-19 exclusions have become the norm. With increasing rates, some insureds are looking at trade offs to minimize premium increases.

Trade Credit Rates are generally increasing, particularly for poor performing businesses. Insurer appetite is contracting for higher risk industries such as construction and tourism.

Geography Trends:Global Broking Center

Insurance Market & Key Risks• Claims activity is driving shifts in appetite and coverage: Insurers are reducing

capacity or withdrawing altogether from some loss-active lines of business / risk types and/or clarifying coverage language, especially related to communicable disease, silent cyber, and business interruption.

• Signs of pricing stabilization are emerging: There are early signs of a change in the market. Overall, there is still a firming trend for most classes; however, the trajectory of increase across some classes appears to be declining quarter-on-quarter, particularly for US and International Property, and Marine Cargo.

• New capacity is entering the market: Even as some insurers withdraw from poor performing classes and risks, capacity overall is increasing. It is emanating from new sources as well as from current insurers taking advantage of elevated pricing conditions by increasing shares.

Claims Environment• Run-off activity is increasing: There is increased activity in run off companies

acquiring books of business from live insurers. The claims philosophy of run off companies is different to that of live companies. They are more disciplined in terms of how they handle claims and less focused on ensuring the maintenance of relationships through claims.

• Claims volumes are fluctuating: While some claims activity has slowed due to COVID-19 impacts, there has been an increase in claims activity in the following areas:

� Marine / Cargo / transit.

� Financial lines / class actions.

� Cyber / ransomware.

� Medical Professional / missed and delayed diagnosis.

� Property Catastrophe losses (especially emanating from the US).

Tips for Clients• Explore alternative solutions: Traditional and non-traditional options are

expanding, and it is increasingly important to explore alternatives such as captives, facilities, MGAs/MGUs, risk financing, and changes to program structures to achieve the best outcomes.

• Re-review insurance coverages and structures: Risks, exposures, and risk management strategies have changed. Coverages, limits and deductibles should be carefully considered to ensure they remain appropriate.

• Start early: The renewal process is taking longer. There is greater underwriter scrutiny, and more questions are being asked. Give yourself enough time to respond.

Global Broking Center: Market Overview

Overall Conditions



Global Broking Centre

GBC Bermuda

GBC London

GBC Singapore

Insurer Attitudes

Flexible

Prudent

Aggressive

Overall Conditions

Soft

Stable

Challenging

Coverages

Broadening

Stable

Restricting

Limits

Increasing

Stable

Decreasing

Rates

Down

Flat

+1–10%

+11–30%

>+30%

Deductibles

Down

Flat

Up

Capacity

Abundant

Ample

Constrained

Reinsurance

Abundant

Ample

Tightening

Global Broking Center: Q1 2021 Market and Claims Dynamics

Market Dynamics



Quantum Acceptance

Speed of Payment


Global Broking Centre

GBC Bermuda

GBC London

GBC Singapore

Better

Same

Worse

Claims Dynamics

Global Broking Center: Q1 2021 Market and Claims Dynamics


Coverage Acceptance

Quantum Acceptance

Speed of Payment


APAC

EMEA

LATAM

North America


Better

Same

Worse

Global Broking Center: Q1 2021 Rate Trends

Aviation Construction Energy Entertainment and Leisure



Healthcare Services

Manufacturing Marine Power Professions Public Sector Real Estate Space Transportation and Logistics

All Products

Aviation

Casualty/Liability

Construction

Crisis Management

Cyber


Environmental

Financial Lines

Marine


Property

Space

Surety

Trade Credit





Healthcare Services





All Products

Automobile

Aviation

Casualty/Liability

Construction

Crisis Management

Cyber


Environmental

Financial Lines

Marine

Products Liability


Property

Surety

Trade Credit

Down Flat +1–10% +11–30% >+30% N/A

AviationThe past year has brought a number of challenges for the aviation industry, including COVID-19 which resulted in a massive reduction of passenger numbers and air traffic, and a relatively large number of accidents resulting in passenger fatalities. The industry now awaits decisions as to which governance approaches and restrictions individual countries will implement such as COVID testing requirements and proof of vaccination. These measures will likely affect how insurers assess and price risk profiles. In the meantime, rate increases remain significant, and capacity remains challenged. Claims performance is stable, although there have been some delays in payment, particularly with insurers which have withdrawn from this space.

ConstructionInsurer remediation efforts are not only focused on pricing but also on retentions, given the market perception that retentions have not kept pace with growing exposure values and risk profiles. Coverage is generally stable, although most international Professional Indemnity insurers are imposing Cyber exclusions. Very few will agree to affirm Cyber coverage, and those that do are specifically underwriting the Cyber exposure and charging additional premium. Insurer appetite is inconsistent based on exposure type and risk profile and some insurers have specific agendas to de-risk their portfolios. Insurer responsiveness has generally slowed. Market conditions are expected to continue throughout 2021 as insurers remain cautious that the full effects of the pandemic remain unknown.

Global Broking Center: Featured Industries Q1 2021 Overview

EnergyThe effects of the pandemic and global demand fluctuations have driven a focus on managing volatility. Generally, insurers continue to focus on the accuracy of declared Business Interruption values. Rate increases remain the norm for Downstream risks, although at a much lower rate of increase than experienced in 2020. Gross earnings coverages based on “actual loss sustained” wordings are coming under scrutiny. Insurers have widely introduced BI volatility clauses seeking to cap annual and monthly recoveries to a percentage of declared values. There are Downstream pinch points such as Oilsands, natural catastrophe exposed locations, high aggregation areas, and where significant limits are required by lenders. The Upstream market remains stable overall; however, underwriters are focusing on the accuracy of unit price declarations used for LOPI cover. ESG is increasingly being considered by insurers as a factor in deciding which clients are appropriate partners. Retentions remain stable — although options continue to be sought. There is broad consensus on policy wordings. A new LMA version of the BI Volatility clause (LMA5515) was released in Q4 2020 to clarify earlier versions. Communicable Disease Exclusions are now present on all major programs (LMA 5393 is most common). Looking ahead, a further capacity constriction in specific areas like Arctic Drilling and Oilsands is expected. Energy transition technologies and low net carbon dioxide emitting entities are expected to receive preferential treatment.

Entertainment & LeisureCOVID has had a range of impacts on the different sub-sectors comprising the Entertainment & Leisure industry. There has been little change in the event cancellation landscape. Robust COVID protocols are enabling the TV/Film/Commercials Production sub-sector to continue. Non-appearance risks are minimal as no international touring is expected until late 2021. While the business impacts of COVID have differed, insurance pricing is consistently challenging across the industry at large, with no diminution of rate increase being seen across any Contingency product. Deductible increases have become common — driven by insureds’ premium management efforts rather than insurer demand. A general tightening of policy language continues. Capacity has slightly contracted, and more is expected to leave.

Food System, Agribusiness & BeveragePrice increases generally continue. Capacity is stable, with a focus on adequate retentions and insurer profitability. Insurers are reviewing line sizes on any individual risk and are actively reducing lines when deemed necessary. There is heightened underwriting scrutiny, particularly in the product contamination space. Soft market enhancements have become more challenging to secure, particularly when transitioning to a new insurer.

MarineThere has been some downward pressure on Cargo rates amidst increasing market appetite and capacity, with new entrants — particularly MGAs — coming into the market. While there is still significant capacity for the majority of Hull risks, capacity is being tested on cruise vessels and major construction projects due to values exposed. A two-tiered hull market is emerging. In one tier are insurers with appetite for growth, driving opportunistic underwriting and leading to increased verticalization as a result of a number of factors, including having the ability to write on company platforms, new entrants coming into the space, and greater autonomy to manage and grow the portfolio where underwriting results have been favorable. The second tier reflects those insurers which continue to be challenged by Lloyd’s remediation and who are restricted from adopting a flexible underwriting approach. There is concern that vessel reactivation issues could arise where vessels have been in long term lay up. Coupled with growing mental well being concerns for crew, the market is watching for a potential rise in Hull losses. Reinsurance requirements have led to the application of Communicable Disease Exclusion clauses across all lines. The claims environment is relatively stable but a few notable losses in 2020 has continued to ensure that a softening market is still some way off. Simple, straightforward losses are benefiting from the work from home environment, with underwriters being more available and reviewing electronic claims files in a more timely fashion. Complex losses that require interaction, understanding and discussion have been more problematic and take longer to resolve than they would in the office.

Global Broking Center: Featured Industries Q1 2021 Overview

PowerIn the conventional tech power assets space, capacity contractions which started mid-2020 have stabilized, although new players are not entering the market. New renewals capacity is entering; however, and this is leading to hybrid programs with a mixture of Conventional and Renewable assets. There is continued private equity acquisition of aged conventional fleets. Gas Turbine Technology is under scrutiny. GE ‘F’ units are experiencing material price increases, often combined with deductible increases depending on version. There has been a slight warming to HA technology. LMS 100 is experiencing continued Property Damage losses (versus historical BI outages). Hydro continues to experience losses across the spectrum, with vertical losses in pump storage. In the onshore renewables space, some conventional insurers are branching out into renewables as existing market players reduce line sizes. There is increasing concern over Natural Perils and appetite is reducing further due to reinsurance treaty provisions. In the offshore renewables space, traditional wind markets are pulling back capacity due to losses, but upstream energy markets are starting to enter the market, bringing significant potential capacity at a more sustainable price. DSU wording remains a key concern. In the operational conventional power generation space, following discussions with lead markets regarding 2020 loss ratios, it is expected that insurer appetite will narrow in 2021 and some capacity may withdraw if profitability does not improve.

ProfessionsMarket conditions continue to be challenging. Rates continue to increase. Capacity is limited, requiring some insureds to assume more of their own risks. Underwriters are highly selective on which risks they write. Silent Cyber is an ongoing challenge. Underwriting decision-making and authority is centralizing. Claims frequency is stable, while severity is rising — driven partially by social inflation — with some incurred sums reaching well into Excess layers.

SpaceDespite a number of anomalous events which led to several high-severity claims in 2020 and early 2021, there has not been a large uptick in premium rates. While rates remain elevated, competition between insurers for attractive risks, and significant overcapacity, is serving to stabilize the market. While a small number of insurers have withdrawn, citing poor book performance, other players are viewing the market more positively and additional capacity has entered. Currently, the maximum capacity available (theoretical capacity) for space launch risks is approximately USD 970 million, and USD 890 million for in-orbit coverage. Working capacity for launch is currently estimated to be USD 612 million and USD 457 million for in-orbit. (Working capacity represents the maximum capacity the insurance market will actually offer for a best in class launch or in-orbit risk and assumes all markets will underwrite the risk.) While there remains significant differentiation in pricing, technology of greater heritage and reliability continues to attract the strongest demand and preferential premium rates. Insurers are more selective in the programs they are willing to support and depending upon the risk profile are being judicious with their level of support. In the absence of further claims, Aon expects the space insurance market to stabilize and conditions for insurance buyers to improve later in 2021.

Global Broking Center: Featured Products Q1 2021 Overview

Financial Lines Market conditions continue in a similar state as the latter part of 2020, with insurers looking to impose significant rate increases nearly across the board. Retentions are increasing and coverages are restricting. The ‘silent cyber’ mandate from Lloyd’s is currently the most pressing coverage issue, with some insurers attempting to impose exclusions that may impact core cover. Capacity remains a challenge with most insurers continuing to be cautious following a significant reduction in capacity over the past 12 months. Appetite remains focused. The Financial Lines market is expected to remain difficult in the short term, as insurers continue to look for what they believe to be adequate rates and appropriate terms and conditions, following an increase in frequency and severity of losses. Emerging new capacity will bring some relief in the medium term.

Property While conditions remain challenging for some classes like metals & mining and pulp & paper, there are signs the market is easing off its peak. Capacity remains constrained, although new capacity providers are proving useful to fill some of the more distressed mid-layers that were a major struggle 12 months ago. There is greater scrutiny of manuscript language. Significant new coverage restrictions are not being introduced; however, LMA 5393, LMA 5400 and SRCC exclusionary language for specific regions are now standard. Insurers are showing more flexibility and desire to maintain existing portfolios following a period of significant remediation. Insureds are generally maintaining limits and deductibles, although some deductible increases have been implemented to help offset premium increases at a time when budgets are constrained due to ongoing recovery from COVID-19 impacts.

Featured ProductsCasualty Underwriters are continuing their Q4 re-underwriting strategies aimed at correcting/resetting for profitability. These strategies include assessing coverages, capacity, triggers, and pricing. The impacts have led to ongoing price increases, particularly on Excess and Umbrella coverages, as well as reduced line sizes, increased co-insurance/shared placements, and more ventilation of layers. More restrictive, standard forms — rather than bespoke policy language — are being offered. Risks experiencing the most challenging environment include mining, thermal coal, energy, bushfire exposed, pipelines, and roofing involving hot torches.

Crisis Management The increase in claims did not materialize to the extent expected in 2020; instead, relatively modest upticks occurred. However, insurers remain cautious as waivers and requests for payment restructuring agreed last year are due to expire in 2021, and some of these transactions may be subject to claims thereafter. Market appetite has expanded and is more diverse, particularly for Political Risk. Capacity remains sufficient. Three insurers withdrew during 2020 but new entrants have filled the void.

Cyber Loss frequency and severity has escalated — particularly related to ransomware — and the market has reacted with tighter coverage language as well as continued, significant rate increases. Appetite remains strong, particularly for differentiated risks, as insurer risk selection is becoming more focused. Some established structures are being restructured in order to secure the same total tower limit; larger primary lines are becoming more common. Market conditions are expected to continue throughout 2021.

About Aon Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

© Copyright 2021 Aon plc

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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Key Aon Contacts

Cynthia Beveridge President, Aon Broking, Commercial Risk Solutions [email protected]

Neil Harrison Global Chief Claims Officer, Commercial Risk Solutions [email protected]

Tracy Hatlestad Executive Managing Director, Reinsurance [email protected]

Paul Rangecroft Senior Partner, Retirement Solutions [email protected]

Tucker Sharp Global Health Chief Broking Officer, Health Solutions [email protected]

Steve Voss Senior Partner, Aon Investments [email protected]

Hugo Wegbrans Global Chief Broking Officer, Commercial Risk Solutions [email protected]

Documents

Aon Global Market Insights Q1 2021 - assets.foleon.com