The most recent industry commentary from Keefe, Bruyette & Woods (KBW) and MarketScout reveals that U.S. commercial property and casualty (P&C) insurance rates declined by 1% during September, following a flat August.
According to MarketScout’s Chief Executive Officer (CEO), Richard Kerr, U.S. insurers are showing signs of “tuning” up their pricing as the soft market continues.
“We expect pricing on most lines to be adjusted downward with a few exceptions such as commercial automobile/transportation risks and accounts with poor loss experience or other underwriting concerns,” said Kerr.
As a reaction to the softened reinsurance market and the expansion of that softening into commercial insurance lines, as re/insurers seek out more profitable avenues for deploying capacity and excess capital overspills, a re-tuning of pricing was always inevitable.
MarketScout’s U.S. commercial P&C insurance market barometer and accompanying commentary, states that by coverage classification the majority of business lines remained flat, excluding a -2% change for property exposures to -1%, and auto remained at plus 2%.
As evidenced by the chart below, analysts at KBW note that commercial U.S. P&C rates showed a 1% year-on-year decline during September, with the firm advising that this is the first negative reading since August 2011.
“We expect rates to remain modestly negative in the coming months as the industry adjusts to significant excess capital,” said KBW.
Furthermore, when looking at MarketScout’s insurance barometer year-on-year change, a 2.5% decline can be seen in September, somewhat steeper than the 1% dip witnessed in August.
“We believe that this underlying cycle effectively predicts near-term pricing behaviour, the second derivative has remained negative YTD, and we think it points to more near-term pricing pressure,” advised KBW.
Adding; “As rates trend modestly negative and fall below currently benign loss cost inflation, we believe this will constrain future margin expansion prospects.”
Broken down by account size, and the insurance barometer reveals that jumbo (over $1 million) sized accounts fell even further in September to -4%, while large ($250,001 – $1 million) sized accounts also fell by 1%, to -1% during the month.
While small (up to $25,000) and medium ($25,001 – $250,000) sized accounts both remained flat during September.
In recent times the insurance and reinsurance market has been flooded with capacity from traditional and increasingly alternative sources, pressuring re/insurance pricing and continuing to trickle down into primary lines, with the most notable negative impact being felt by commercial property business lines.
And with no signs that the challenging market environment will reverse anytime soon, in reinsurance or in insurance, it’s not surprising KBW maintains its negative outlook on commercial P&C rate movements in the coming months.
“We expect rate changes to remain modestly negative over the next few months. We’re pretty neutral on primary commercial insurers, as sustained underwriting margin improvement is unlikely with rates trailing loss cost trends, especially if reserve development fades further,” concludes KBW.