U.S. cat-exposed commercial property rates decline up to 15%: Marsh

by Artemis on February 23, 2016

Analysis and market commentary from insurance and reinsurance broker Marsh notes that U.S. commercial property renewal rates declined by up to as much as 15% in some business lines in Q4 2015, compared to the same period in 2014.

As a lack of catastrophes, ample capacity, and intense competition continues to shape the global insurance and reinsurance industry, rates across the majority of re/insurance business lines have been under pressure for some time now.

“The U.S. commercial property insurance market softened further in 2015, continuing a two-year trend that is expected to continue into 2016, barring any unforeseen changes in conditions,” says Marsh.

Highlighting just how pressured rates are for the U.S. commercial property sector, Marsh reveals that non-cat exposed companies experienced an average rate change decrease of 5% to 10%, while modestly cat-exposed, and largely cat-exposed organisations experienced decreases of between 5% and 15%.

Marsh explains that the above figures “represents the typical rate change at renewal for average/good risk profiles.”

“As the year progressed, rates generally decreased for buyers due to minimal catastrophe losses, insurer competition, and an influx of alternative sources of capital,” says Marsh.

That cat-exposed lines experienced the steepest declines on average isn’t too surprising, as the majority of alternative reinsurance capital and resulting competition is heavily focused on property cat exposed business lines, which are better understood and easier to access.

However, numerous other market analysts and industry commentary since the beginning of the year have noted average rate declines across the U.S. commercial property sector of up to 10%, so the 15% reported by Marsh suggest that some experienced even steeper declines than previously perceived.

Artemis reported recently that U.S. commercial P&C rates maintained the negative trend witnessed throughout the second half of 2015, with MarketScout reporting a 4% average rate decline in January 2016.

Further highlighting the mounting pressures on the commercial P&C sector from the current reinsurance landscape, Marsh notes that for all three segments (non-cat, moderately cat, and largely cat-exposed organisations) in 2014, the average rate change at renewal compared with 2013 was flat to a 10% decline.

Highlighting that year-on-year the pressures have mounted and the challenges intensified, with Marsh predicting more of the same in the coming months.

“Non-cat-exposed organisations generally can expect competition for their property insurance programs in 2016, with favourable terms and conditions and price decreases likely to average between 5% and 10%.

“CAT-exposed organisations can generally expect rate decreases ranging from 5% to 15%, depending on their risk profile and concentration in CAT-prone areas,” predicts Marsh.

The entry of alternative reinsurance capital has slowed in recent times, and reports in the sector also suggest that more capital will be deployed in the casualty arena to avoid the most competitive and pressured lines in the property catastrophe space.

But despite this, absent any major catastrophe event, with some in the space even suggesting this might not be enough on its own to significantly change the current market dynamics, it’s likely that U.S. commercial property rates will remain down, with further declines possible throughout 2016, albeit at a slower pace than seen previously, states Marsh.

Away from rates and looking at the wider U.S. property market in 2015, Marsh explains that few new insurers entered the space, likely owing to current market challenges, and that the majority of existing insurers grew their underwriting capacity “and ultimately grew their business.”

Discipline and efficiency will again be key for players in the U.S. commercial property space in 2016, as was the case last year, amidst the expectation of continued interest from both alternative and traditional reinsurance capital providers, at a time of benign losses and high competition.

Subscribe for free and receive weekly Artemis email updates

Sign up for our regular free email newsletter and ensure you never miss any of the news from Artemis.

← Older Article

Newer Article →