The Council of Insurance Agents & Brokers (CIAB) has reported a continuation of rate declines in the commercial property & casualty (P/C) sector in Q1 2017, an area reinsurance and insurance-linked securities (ILS) capacity are increasingly adding pressure as they look to access risk more directly.
On average, commercial P/C rates declined across all accounts in the first-quarter of 2017 by 2.5%, which, although more moderate than the 3.3% recorded a year earlier, represents the ninth straight quarter that rates have declined across small, medium and large accounts, says the CIAB in a new report.
By business line, on average, rates declined by 0.7% in Q1 2017 compared with 2.1% a year earlier, and 1.4% in the final quarter of 2016.
During the first-quarter of 2017 commercial property rates declined by 3.1%, compared with 5.2% a year earlier, and 4.4% in the final quarter of 2016, says the CIAB.
Ken A. Crerar, President and Chief Executive Officer (CEO) of the CIAB, said; “Commercial premium pricing this quarter was consistent with what we saw in 2016. The market remained soft across most lines of business. Poor loss ratios in commercial auto continue to drive pricing upward, a trend we continue to see in accounts of all sizes for that particular line.”
An abundance of capacity from traditional insurance and reinsurance firms, and increasingly non-traditional sources, continues to contribute to the soft market environment, although premium pricing declines have stabilised somewhat in 2017 when compared with 2016, according to the CIAB.
ILS, or alternative reinsurance capital continues to broaden its reach and expand its influence across new peril regions and business lines, with commercial property and catastrophe exposed lines feeling the pressures.
During the softening insurance and reinsurance market cycle third-party reinsurance capital has been adding further pressure to commercial property insurance, with reduced reinsurance rates translating into savings for insurers and were passed on.
However, as ILS continues to grow in maturity and the size of the marketplace expands, investors and sponsors alike are eager to enter new lines of insurance and reinsurance business more directly, as opposed to ILS funds participating in collateralised reinsurance structures to expand into primary lines, for example.
The trend has seen a number of the larger ILS funds allocate reinsurance capital directly behind pools and portfolios of commercial property insurance risks, via relationships with brokers, MGA’s and fronting insurance companies.
This provides ILS players with greater access to diversifying and potentially less competitive and more profitable lines of business. Although, this does intensify competition in the commercial insurance market, ultimately contributing to further rate pressure across the sector.
The softening landscape shows little sign of turning anytime soon, and with ILS funds likely to remain interested in accessing primary commercial insurance risk more directly, rates in the sector could come under further pressure in the months ahead.
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