Benign U.S. catastrophes, increased capital, to drive rates south: RLI COO

The continuing benign nature of U.S. catastrophe insured losses, which remain below average, combined with the increased capital allocation to catastrophe insurance and reinsurance, will continue to drive rates down, according to the COO of RLI Corp.

Mike Stone, President and Chief Operating Office of insurer and reinsurer RLI Corporation, said that property premiums continue to be under pressure due to the high levels of competition and capital, both traditional and alternative, resulting in rate declines during the third-quarter and an expectation that more price pressure is ahead.

It’s RLI’s property sector, particularly in the property catastrophe business the firm underwrites, that it has seen the biggest impacts to rates so far and foresees continued pressure and challenges. Rate pressure is not just from new (or alternative) capital, it’s also from traditional players and other companies looking for opportunities it seems.

“In the cat business, that’s wind and quake, we are seeing burgeoning competition from standard companies, surplus lines companies, alternative capital and we saw cat wind rates down some 10% for the quarter and quake down 6%,” Stone explained during the firm’s Q3 earnings call last Thursday.

Stone’s expectation is that there is further rate pressure to come, likely across both primary and reinsurance catastrophe exposed lines that RLI underwrites. The expectation is for further downwards pressure through the end of this year and beyond.

Stone said; “This space will continue to be challenging through the year-end. Another benign nearly non-existent U.S. cat quarter, along with increased capital allocation to this space, will continue to drive rates south.”

RLI sees an abundance of reinsurance capacity available for itself for 2015, according to EVP Craig Kliethermes, perhaps suggesting that RLI might take advantage of this and look to increase its reinsurance purchasing, if the price and terms are right.

If nothing else becomes clear after the third-quarter earnings season, it will give us a good indication of where rates are heading in property catastrophe insurance and reinsurance.

So far it does look as if they are heading south, with both RLI Corp. and Platinum Underwriters expecting to see pressure on rates at the upcoming renewal season, reinsurers Munich Re and Swiss Re both anticipating continued pressure, and earnings season has only just begun.