Speaking during the Chubb first-quarter earnings call today, CEO Evan Greenberg called out supply-demand factors related to capital in the insurance and reinsurance industry, as well as high levels of intermediation cost, as softening the property insurance market at a pace he called “dumb”.
Asked about this during the earnings call, Evan Greenberg highlighted a “hunger” that is making the difference, saying that how the capital is showing up is a big cause of price pressures.
On large account property risks, both admitted and excess and surplus lines (E&S), Greenberg said the pricing levels are judged to be inadequate, driving the pull-back by Chubb in Q1.
“In a number of important markets, property and financial lines pricing conditions are soft, with property pricing in those markets softening at a pace that, frankly, I’ll only describe as dumb,” he stated.
Greenberg further explained that, “If I sort of step back and look at overall market rate, in shared and layered in North America and in London, pricing overall is off 25% in the quarter, heading to thirty. You can actually see it’s accelerating in that trend.
“And by the way, loss costs, to put a point on it, loss costs are moving at about four to 5% in shared and layered property, so you can work out the math there.”
He continued to explain that, “It’s always supply demand. So it’s the amount of supply, which is capital, that is chasing a relatively finite amount of business and by the way, in a concentrated way.
“If it’s E&S, and it’s London, or it’s in the United States, it’s boxed up and brought to underwriters, you can access it. It’s not like retail business, generally, and it’s urban based. It doesn’t take a lot of capability. It takes some balance-sheet capital and a couple of underwriters and, you’re in the market.”
Greenberg noted some differences in how that capital comes to market now.
“The structural difference this time is simply how the capital is showing up. It’s showing up, a lot of it, in a volume-based incentive system. MGA’s, you know, the majority of them, it’s just volume based. What do they bring? They bring a cheaper price and a higher commission.
“And it’s the reinsurance market and it’s alternative capital, and the number of bites of the apple in the supply-chain taken by intermediation.”
Concluding his answer with a note of caution by saying, “That is what you are reflecting here. And by the way, the loser at the end of the day is the ultimate risk taker who puts up the capital.
“This is short-tail business. The report card comes home rather quickly, so stay tuned.”
Greenberg’s comments today are quite the contrast to those made in Chubb’s 2023 annual report, published in March 2024. In which he stated that, property underwriting “the best-priced business in the world right now.”
Fast-forward just a couple of years and now the CEO feels the market is behaving irrationally, it seems, with pricing already at levels where Chubb has begun to pull-back.
Also read: At least $115bn to $125bn of cat losses needed to shift property pricing trajectory: Gallagher Re.
