Despite a reported slowdown Willis Towers Watson has predicted a continuation of rate declines in 2016 for the majority of business lines in the global P&C sector, with natural catastrophe exposed lines experiencing the steepest reductions of up to 12.5%.
Property casualty insurance line rate declines appear to have slowed somewhat in recent times, as the complex global commercial market environment persists, says Willis Towers Watson (WTW).
“A line-by-line look at the industry reveals further complexity. While a slight majority of lines are still seeing decreases, the level of those decreases is smaller,” said WTW.
“Overall, ample capacity in the global insurance marketplace continues to buoy market conditions. However, increased underwriting scrutiny combined with potential challenges stemming from the changing carrier landscape is driving movement in some lines of business,” continued the firm.
WTW predicts price reductions of -7.5% to -10% for non-cat exposed property lines, with catastrophe exposed business lines predicted to decline by between -10% and -12.5% in the coming months.
The global reinsurance marketplace remains awash with capacity from traditional, and increasingly alternative sources, underlined by recent reports that alternative reinsurance capacity increased its share of the overall reinsurance market pie in 2015, to 12% amounting to roughly $72 billion.
As a result of the highly competitive, and overcapitalised reinsurance marketplace capital continues to trickle down into primary business lines, as market participants look for more desirable yields than currently available in the intensely competitive property catastrophe space.
Owing to limitations with modelling and the long-tail nature of risks in the casualty sector the wealth of alternative reinsurance capacity has so far struggled to have a meaningful impact.
Although it is expected that capital markets investor-backed capacity will increasingly find its way into casualty exposed lines, as the acceptance of the asset class matures along with increased understanding of risks.
With this in mind it’s unsurprising that WTW expects rate declines in casualty to be less pronounced, or positive for some areas when compared to the property space, predicting flat to -5%, and increases of +5% to +10% for risks with loss.
For casualty umbrella and excess lines WTW predicts rate movements of flat to -10%, and 10%+ for truckers and NYC construction, during 2016.
While workers compensation and auto are predicted to experience rate movements of -2.5% to 2.5% and flat to 10%, respectively.
Head of broking for North America at WTW, Matt Keeping said; “At the macro-level, the market remains stable and pricing is still considered soft, but we may be starting to see the bottom end of that softening. In property, for example, there’s only so much the marketplace can give back.
“And while we remain in a period thankfully free of huge mega-disasters, losses line by line have taken their toll on marketplace competition. Plus, with interest rates low, insurance companies remain under revenue pressure.”
As noted by Keeping the benign loss environment remains, and coupled with low interest rates, competition and the influx of capacity, it’s hard to see any drastic positive changes in rate movements in the coming months.
That being said, increased demand for reinsurance protection was reported at January renewals and the recent April renewal period.
However, against the back drop of a challenging re/insurance landscape it’s vital insurers and reinsurers remain disciplined and position themselves, where possible, to withstand further rate declines and a continuation of reduced profitability in the coming months.
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.