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

U.S. commercial P&C insurance rates during the third-quarter of 2015 continued to decline across all account sizes and the majority of business lines, by an average of 3.1%, according to the Council of Insurance Agents & Brokers (CIAB).

With capacity and competition in the global reinsurance sector persisting, from traditional and increasingly alternative sources, filtering down into the more accessible business lines in the commercial primary insurance space, U.S. commercial P&C pricing has remained pressured and competition intense.

Property lines were the first to be affected, as reinsurance capital began to over-spill into primary lines. That was followed by increasing interest in primary catastrophe exposed property business from some ILS players. Now, however the pressure seems to be spreading further as reinsurers increasingly move into primary commercial risks.

And while a slight improvement on the average 3.3% rate decline reported by the CIAB during Q2 2015, the “general trend of gradually declining rates observed since the first quarter of 2013,” has persisted across U.S. commercial P&C pricing during Q3.

“We continued to hear from our members that this is a buyers’ market. Competition was fierce and carriers were willing to give on rate in order to retain good accounts,” said Ken A. Crerar, President and Chief Executive Officer (CEO) of the CIAB.

The CIAB’s latest Commercial P&C Market Index Survey shows that large accounts experienced the steepest declines, of 4.1%. Followed by medium-sized accounts at a decline of 3.8%, with small accounts declining by 1.4%.

Average commercial P&C insurance rate changes by account size

Furthermore, notes the CIAB, “This trend was consistent across most business lines as well, with a few exceptions, including Commercial Auto and Flood.”

A broker that operates in the Mid-Atlantic region highlighted the exception with commercial auto, being a slight uptick in rates; “Automobile is the only line that took increases that were not experience related.”

While on flood, the CIAB noted; “Flood insurance rates continued to rise, especially in the Southeast and Pacific Northwest regions, as rate increases, assessments and surcharges continued to be implemented by the National Flood Insurance Program and Write Your Own carriers.”

Concerning general market conditions, the CIAB reports that a large regional broker firm based in the Southeast of the U.S. highlighted “excess capacity” as a driver of the “very competitive market, especially for profitable accounts in target markets.”

Another broker the CIAB spoke with, based in the Mid-West, explained “property was more competitive than in the past and certainly flood continued to be viewed as a troubled peril. Workers’ Compensation became more competitive at a time when medical cost inflation is expected to go up.”

Crerar also noted developments with Workers’ Comp, adding; “It was interesting to see Workers’ Compensation rates decreasing, especially when there was concern by market observers that medical costs might rise and that health care costs could be shifted to workers’ comp programs. This trend is worth keeping an eye on.”

With the rise of alternative reinsurance capital set to continue, further bolstering the capital base of the global reinsurance sector, driving competition and rate declines, reinsurers are expected to increasingly look to deploy capital away from the most pressured business lines, and into commercial P&C business.

This signals further challenging times ahead for players in the U.S. commercial P&C space, as competition and capital remains plentiful, seeking to enter the sector and resulting in a continued downward pricing trend for the majority of business lines, across all account sizes.

Despite rates being relatively stable during the third-quarter of 2015, the brokerage industry is still keeping a keen eye on several other industry trends that could have an impact on insurance placements in the future, highlighted by Crerar.

He said; “We heard from our brokers about the growing cyber insurance market, consolidation in the industry, and attracting and retaining talent. These are long-term, macro-level issues that have been percolating for years.”