Real Estate market conditions: will this be the hardest market ever?


30 July 2020

The current hard market conditions we are seeing are likely to be with us for some time, possibly longer than those witnessed in previous hard markets.

We are seeing additional factors come into force that are affecting the market that have not been prevalent in the past. Meticulous planning, managing expectations, building wider insurer relationships and comprehensive risk management solutions are needed more than ever to deliver the best outcomes for policyholders. 

An understanding of the present environment and how it can affect your business is critical when in a hard market. Below we have provided a summary of the factors that have led to the present conditions.  


Covid-19 will and is impacting the availability and cost of insurance capacity. Even though the majority of policies include pandemic exclusions, the interpretation of policy language has led to many policyholder disputes, culminating in the FCA taking High Court action.

John Neal, CEO, Lloyd’s of London commented that Covid-19 will be the largest loss on record for insurers. When factoring in loss of investment income they estimate the global cost will be US$203 billion, almost double the worst previous event – Hurricane Katrina – which totalled $107 billion (excluding loss of investment income).[1] 

Solvency II

Across Europe there has been a history of insurance companies going bankrupt, principally driven by inadequate claims reserving. Solvency II is a Directive in European Union law that codifies and harmonises the EU insurance regulation. Primarily this concerns the amount of capital that insurance companies must hold to reduce the risk of insolvency. 

Originally due out in 2005, a combination of issues culminated in the EU not rolling out Solvency II until the beginning of 2016 and then allowed insurers 5 years to implement its requirements. This has not only proven an impediment to new market entrants, but for others it has tied up any excess capital resulting in their withdrawing from the market or stopping underwriting new business.  

BREXIT will have no bearing for the UK as the Prudential Regulation Authority have strongly endorsed Solvency II. 

The Ogden Table Change

Future loss of earnings can be a major component of damages in personal injury claims. UK courts use the Ogden Tables which set out the appropriate multipliers to determine claims settlements.

Given the aforementioned challenges with Solvency II, the introduction of reduced Ogden rate multipliers (England and Wales at minus 0.25% and Scotland at minus 0.75%) has proven a hugely significant impact for the underwriting of liability insurances. The insurance industry had anticipated the multipliers to be positive.

This has meant the need for increased premiums and with this the need for additional capital. Whilst this directly impacts liability insurance, it has a wider impact by polluting other insurance classes.  

Property/Business Interruption Claims

A large number of Property insurers were already loss making entering 2020. The January/February UK claims caused by storms Dennis and Ciara were significant, circa £0.5 Bn.[2]

Climate change cannot be ignored, with the frequency of natural disasters becoming more common.

Capital requirements therefore need to consider these loss frequencies thereby adding even more pressure to the market. 

Reinsurance Rate Rises

Insurers’ reinsurance treaties; many which fall due for renewal at the end of this year are likely to see significant increases. If the Covid-19 losses previously highlighted are realised this will further compound the problem. These costs will not be able to be absorbed by direct insurers and we may also see reinsurers withdrawing protection for certain risks. 

Investment Losses

Interest rates have never been lower, and consequently the ability and willingness to accept underwriting losses is no longer acceptable. Investment losses talked about in the London market have been forecast to reach US$96 Bn.[3] 

What measures can be taken?

Will these factors lead to the toughest market conditions ever? Only time will tell.

Understanding the reasons for current market conditions can enable you to plan and take appropriate action to help mitigate any effects. This could include:

  1. Investment in risk management to differentiate your risk. This means providing tangible evidence and a willingness to work with insurers to improve underlying risk performance;
  2. Giving enough time to plan and explore options. Underwriting resource is finite and will only become more precious, so early engagement is key;
  3. Linked with the above, ensure that there is a wider engagement with the insurance market. This may mean considering offshore solutions but only those that are sufficiently capitalised and who subscribe to the Financial Services Compensation Scheme.

It may be challenging times but the Howden Real Estate team has the right attitude, expertise and understanding of the current market issues to confidently deliver insurance solutions for clients.

For further information on the Howden offering could help you and your business, please contact our specialist Real Estate team.

[1] Business News of Reuters, May 14th, 2020

[2] Insurance Times, 21 February 2020

[3] Business News of Reuters, May 14th, 2020


Gary Reed - Head of Sales, Howden Real Estate

A photo of Gary Reed