U.S. commercial P&C rate declines accelerate in November

U.S. commercial P&C insurance lines experienced average rate decreases of -3% during November, accelerating the -1% movement in September and -2% decline seen in October, according to the latest industry commentary from Keefe, Bruyette & Woods (KBW), and MarketScout.

MarketScout’s Chief Executive Officer (CEO), Richard Kerr, notes, “there are very few signs of rate increase,” as U.S. insurance entities continue to adjust rates downwards, driven in part by the softening reinsurance market pressures filtering down into primary, commercial business lines.

“The only coverage with seemingly steady rate increases is cyber liability. Underwriters don’t have a lot of data to use for pricing cyber so we expect pricing to be inconsistent in the near term,” added Kerr.

By account size, MarketScout reveals that jumbo (over $1 million) sized accounts declined by 4% during November, while small (up to $250,000) sized accounts fell by 2%, and medium ($25,001 – $250,000), and large ($250,001 – $1 million) sized accounts both declined by 3%.

When looking at rate movements for individual coverage class, MarketScout highlights that the majority of business lines were down further from October.

Commercial P&C insurance rate changes (Source: MarketScout & KBW)

The above chart from financial services specialists’ KBW shows that rate changes have been trending downward since the middle of 2014, turning negative in September 2015.

“As rates trend further into negative territory and remain below light loss cost inflation, we believe this will constrain future margin expansion prospects,” said KBW.

Adding; “ We expect rates to remain pressured in the coming months in response to excess competition and recent superficially-solid underwriting results.”

Alternative and traditional sources of reinsurance capacity continue to weigh on the sector, resulting in heightened competition and excess capacity, with the subsequent pressures filtering down into primary lines as reinsurers look to deploy capital into less competitive areas.

This trend, coupled with a prolonged period of benign losses, has seen industry commentary discuss that some insurers are masking true underwriting profitability with reserve releases, something which could come back to bite when losses are normalised.

Commercial property lines have felt the most severe impact of the supply/demand imbalance in the reinsurance market, as capital has spilled over, and with no signs that the challenging market landscape will turn anytime soon, it’s likely further declines will be seen as capacity continues to find its way to primary lines.

As a result, KBW maintains its negative outlook on commercial P&C rate movements in the coming months.

Also read:

– U.S. commercial P&C rates down 3.1% in Q3, softening continues.

– P&C re/insurance pricing outlook bleak over next 18 months: Moody’s.

– U.S. commercial P&C insurance rates decline in September.

– U.S. commercial P&C rate movements back to flat in August.

– U.S. commercial P&C rates rise in July, but outlook still negative: MarketScout.

– Softening commercial P&C insurance market down 3.3% in Q2.