Catastrophe exposed property insurance rates saw “massive rate increases” through the third-quarter of 2020, according to the latest analysis from MarketScout.
The continued acceleration of primary catastrophe exposed property insurance rates suggests that the firming of reinsurance rates may also accelerate, in some of the United State’s peak catastrophe zones.
After a second-quarter where the catastrophe exposed regions and segments of the property insurance business rose the fastest, while broader commercial and personal property rates also increased, the third-quarter of 2020 has followed-suit.
Capacity pull-backs continue to exacerbate conditions in some of the U.S. peak catastrophe zones, but so too do current and ongoing live catastrophe activity.
The hurricanes have brought Florida property back into focus, while the wildfires in California are also driving changes in the local insurance marketplace.
For personal insurance lines across the U.S., the third-quarter 2020 composite rate change was 5%, according to MarketScout.
However, that doesn’t tell the full picture of how rates are moving in discrete areas of the market.
Richard Kerr, CEO and Founder of MarketScout explained, “The composite rate is measured on millions of insureds across the United States in low risk areas. Conversely, homeowners in California and coastal areas of Florida are suffering massive rate increases.”
He continued to explain how market dynamics are helping to drive rates higher, “If an insured owns a home in high risk wildfire or hurricane areas and has suffered prior losses, rate increases can be as high as 40 percent. Many admitted insurers are avoiding taking risk in these areas, thereby, driving insureds to the non-admitted market. Since there is less regulation for non-admitted insurers, they can restrict coverage and charge higher rates.”
High-value homeowner coverage rose by 5.5% on average, while sub-$1 million homes rose slightly slower at a 5% composite rate.
As capacity pulls-back in catastrophe exposed and loss exposed regions, the opportunity for cat writing specialists to move in increases and as a result reinsurance capital is typically heavily supporting these moves.
Overall, the catastrophe exposed rate increases will benefit ILS funds and third-party reinsurance capital providers in time.
On the commercial side of the U.S. insurance market, the third-quarter saw rises across every line of business.
Again, commercial property rates were one of the fastest developing sectors, in terms of rate, with MarketScout calling increases “aggressive.”
Kerr commented, “The composite rate is up 6.25 percent for the third quarter 2020 as compared to up 4.8 percent in the second quarter. Rates began adjusting upward at a quicker pace in September. We expect the fourth quarter 2020 will reflect continued aggressive rate increases in property, D&O and umbrella/excess liability coverages.”
On average, commercial property rates rose by 7% during the third-quarter, an acceleration from the 5% rise reported in Q2.
Catastrophe exposed U.S. E&S property business is a significant driver of reinsurance rate as well, also an area of interest for some insurance-linked securities (ILS) funds and investors.
Habitational rates were up an average of 8% in Q3 2020, again an acceleration from the 7% rise seen in Q2.
So, property rates in the U.S. continue to rise everywhere. But still, the most catastrophe exposed regions, where insurance and reinsurance capital has been most loss-affected in recent years, are seeing the fastest increases suggesting further stimulus for reinsurance renewal rates as well.