U.S. commercial P&C rates maintain negative trend in January 2016

After constant declines in commercial P&C rates through the final months of last year 2016 has seen the trend continue, with MarketScout reporting average declines across the U.S. commercial P&C sector of 4% in January.

The fight for market share among primary insurers continues to intensify, as pressures from an overcapitalised reinsurance market filter down into primary business lines, increasing competition and negatively impacting rates.

“Commercial property insurers are getting ready to scratch each other’s eyes out as they fight for market share. We see nothing to prevent commercial property rates from dropping further,” explained Richard Kerr, Chief Executive Officer (CEO) of MarketScout, underlining that commercial property rates declined by 5% during January 2016, more than any other coverage class.

“Commercial property rates dropped from minus 2 percent in December 2015 to minus 5 percent in January 2016,” said Kerr.

In fact, highlighting just how much pressure commercial P&C players are under in the current market landscape, MarketScout’s latest Insurance Barometer reveals that all coverage classes were down in January, with the exception of commercial auto, EPLI, and crime, which all remained flat.

Albeit at a slower pace than this time last year, the entry of alternative reinsurance capital is persisting and is increasingly looking to access U.S. commercial insurance risks directly, which could signal further acceleration of rate declines in the coming months.

Broken down by account size, MarketScout reveals that small (up to $25,000) sized accounts declined by 4% in January, as was the case with large ($250,001 – $1 million) sized accounts. Medium ($25,001 – $250,000) sized accounts witnessed the most dramatic decline during the month of 5%, while jumbo (over $1 million) sized accounts declined by an average of 3%.

In addition to MarketScout’s U.S. commercial P&C market January update, analysts at Keefe Bruyette & Woods (KBW) commented on the sector landscape, while the Council of Insurance Agents & Brokers (CIAB) provided commentary on pricing in the sector during the fourth quarter of 2015.

“We expect rates to remain pressured in 2016 and beyond as companies fight for share. We don’t expect double-digit decreases, but January’s 4% drop should get a little worse. We don’t currently see a catalyst to halt further rate declines over the upcoming months,” said KBW.

Commercial P&C insurance rate changes

The CIAB reports that on average commercial P&C pricing declined by 2.8% during the final quarter of 2015, an improvement from the -3.1% witnessed in Q3, but a significant decline from Q4 2014, which witnessed an average decrease of 0.7%.

In line with the trend seen from the final quarter of 2014 and throughout 2015, large-sized accounts experienced the steepest average declines during Q4 2015, at -3.7%. While small-sized accounts were down by an average of 1.5%, and medium-sized accounts decreased by an average of 3% during the period, notes the CIAB.

President and Chief Executive Officer (CEO) of the CIAB, Ken A. Crerar commented; “Consistency was the theme of 2015 as we saw decreased rates across all size accounts in all four quarters.

“This soft market presents both challenges and opportunities for brokers. Lower rates meant less revenue but as the economy improved, policyholders were seeking increased limits and additional lines of coverage.”

Looking forward, Crerar said; “We’ll also continue to monitor how trends and advancements, such as industry consolidation, the burgeoning cyber insurance market and the use of technology in modeling and underwriting, impact rates and capacity in the insurance market in 2016.”

Also read:

– U.S. commercial P&C rates continue downward trend in December.

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

– 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.