Headline losses — particularly in the final quarter of 2023 — countered the trend of profitability that was built in previous years, thanks to reductions in previous claims reserves. But other pressures have maintained a healthy appetite and competition across the mining markets.
The big picture:
- Severe losses were compounded by an aggregation of smaller losses
- Losses overturned the trend of profitability built in previous years
- Despite this, (re)insurers are competing for business, maintaining competitive pricing and increasing capacity
- The three-layer tiering system is gaining traction as a way to better differentiate risk profiles
- Different exposures are coming under the spotlight
Losses are higher than expected
But market appetite endures
While there haven’t been any seismic shifts in new entrants or withdrawals from the market, two push-pull trends are playing out. A spike in losses since this time in 2023 would ordinarily be met with a hardening of the market, but a counteractive trend of increased competition for market share is maintaining the equilibrium across capacity, pricing and terms.
Healthy profitability in previous years has gone some way in accommodating for losses in 2023, and market appetite is more robust than last year.
Competition is building
The tiering system is differentiating opportunities
The three-tier system is bolstering decision-making with a clear grading of which risks are perceived well and those which aren’t. For risks with a strong and positive perception in the market, insurers are willing to compete.
For specialty mining markets, losses from tier-one businesses have had a more severe impact than on the general property market, which has the scale to flex its strategy. Come renewal, the general property market will be positioned to compete more aggressively for tier-one risks.
For tiers two and three, the general property and specialist markets are in closer alignment. There will be specialist markets which might be tempted to write tier two and three insureds because healthier loss records and prevailing premium rates (compared to certain tier one businesses) are making these opportunities more attractive.
Global and domestic markets are stepping up
With more capacity, pricing is trending downward
Thanks to a general return to profitability globally in recent years, the property market is softening across all tiers. Domestic insurers are entering the market and providing additional capacity, often at competitive prices. Nevertheless, domestic markets are limited by the available business in their geography, meaning they’re more likely to feel the pinch of any losses on their property books.
For some regions with a high risk of natural catastrophe losses, such as North America, this situation remains delicate. It would take a very large natural catastrophe loss event to potentially turn the tide of recent trends towards softer market conditions. Where an influential market hardens and reverses the downward pricing trajectory, ripples will be felt across other markets – big and small.
Markets are reacting to changing risks
Different exposures come under the spotlight
Typical mining exposures such as mechanical/human, tailings, fire, ship-loader failures, derailments, and natural catastrophes are all well-established and generally well-managed. But more recently, corrosion (structural integrity) and geotechnical stability of leach pads have become focus areas for insurers, with coverage clauses being adapted in reaction to loss events.
Conversations are opening up
With closer alignment between insurer and business priorities
Underwriters have shown more flexibility in their information requirements. Historically, businesses that did not meet the threshold for information requirements, such as value clauses, were unable to secure the breadth of coverage previously enjoyed. But the conversation is opening.
Meanwhile, the mining sector is investing in new technologies to keep pace with change, and a clear understanding of the business’s position on their ESG pathway will be increasingly important in having transparent conversations with the insurance market.
Markets and businesses need to prepare for emerging trends
Mining and metals companies can position themselves for success by:
- Investing in analytics
- Identifying strategic objectives
- Balancing global and regional strategies
To read more on how property market forces are driving competition, please download the full article below.