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Commercial property insurance rates accelerate globally. Positive for ILS


The impacts of catastrophe losses around the globe continue to be felt in the commercial property insurance market, as rate rises continued to accelerate in the fourth-quarter of 2019 with U.S. property one of the fastest moving segments.

Across the globe, on average, pricing for property insurance risks increased by 13% in the fourth-quarter of 2019, while financial and professional lines were up almost 18% and casualty increased 3%.

According to global insurance broker Marsh, commercial insurance pricing increased by 11% in the period, the ninth consecutive quarter of price increases.


The steady and now accelerating increases in commercial insurance rates are a direct response to a number of factors, such as catastrophe losses, the impacts of social inflationary trends, cut-backs among some major insurance carriers, as well as the state of global reinsurance.

The fact rates continue to accelerate bodes well for continued increases in reinsurance markets as well, as reinsurers are keen to ensure that they stay aligned with the higher cost of insurance capacity.

Dean Klisura, President, Global Placement and Advisory Services at Marsh, commented on this price trajectory, “The impact of natural catastrophe losses and increasing concern about litigation trends have led to price increases for many insurance buyers.

“Global pricing has now increased every quarter for two years, and while capacity largely remains strong, there has been tightening in certain product lines and regions.”

Tighter capacity could also be a result of increased reinsurance rates as well, given this is expected to weigh on some less well-capitalised players. But in the main any reduction in capacity for commercial insurance risks is likely largely down to actions taken in markets such as Lloyd’s, as well as by players such as AIG.

The increasing rate acceleration is a particularly positive indicator for the insurance-linked securities (ILS) funds that source risk using primary origination methods.

ILS fund managers like Nephila Capital, Elementum, ILS Capital and others, that have dedicated access to primary property insurance risk in catastrophe exposed regions will find these rate increases boosting the return potential of their portfolios in time.

Of course, it is property rates and U.S. property insurance in particular where strategies such as Nephila’s that originate risk from primary sources, to flow directly backed by reinsurance capital into their ILS funds, are most focused.

Although the way rates are rising in commercial property insurance globally may provide some opportunity for expansion of these strategies should rate acceleration be sustained.

Globally, property insurance pricing increased by 13% in the fourth quarter, but for the United States rates accelerated even faster, with property insurance pricing rising a huge 18% in Q4 2019, which is the highest level since Marsh began measuring this data in 2012.


Part of the reason for the soaring property insurance prices is that catastrophe aggregates in the London and European markets have reduced, which is now beginning to limit available capacity, Marsh noted.

The United Kingdom has also experienced a dip in capacity available to soak up property insurance risks, with this helping to propel UK property insurance pricing up 8% in the quarter.


Both lead and following markets are controlling their capacity deployment, Marsh said, with some further examples of portfolio closure being seen as well.

Latin American property insurance rates and pricing are also accelerating, with property pricing now having increased for two quarters in a row, after having been flat or declining for the last six years.

There was an increase in LatAm property insurance pricing of an impressive 9% in Q4 2019, with the biggest increases seen in Chile and smaller increases reported in Brazil, Colombia, and Mexico.


Even Continental Europe is seeing commercial property insurance pricing accelerate higher, with rates rising 10% in Q4, the fifth consecutive quarter of increases.

Marsh explained that, “Property pricing showed a steady rate of increase throughout 2019, after a multi-year period of flat or declining pricing movement.”

Saying that, “Pricing for CAT and non-CAT risks increased in most countries, generally in the range of 5% to 10%.”


The Pacific region saw perhaps the highest level of increases, with property business rising a huge 18% in the quarter, which was the eighth consecutive quarter of year-over-year double-digit increases.

“Double-digit increases were reported for CAT and non-CAT risks, in both Australia and New Zealand. Pricing was up 10% to 20% for many clients; in some cases even higher,” Marsh said.


Finally, the Asia region saw property insurance pricing rise 7%, as international carriers looked to secure increases across the region.

Marsh said, “Double-digit increases were seen in both CAT and non-CAT exposed risks in Hong Kong, Singapore, and the Philippines. The impact from 2018 CAT losses in the region are still being felt. Certain Lloyd’s syndicates have withdrawn from lines of business.”


To see commercial property insurance prices rising and in all cases accelerating globally is a little unprecedented, at least in recent years.

Without doubt capacity factors are helping to drive this trend, alongside catastrophe loss experience and the influence of claims inflation due to social factors.

As ILS investment strategies that access the returns of primary pools of property insurance risk increase in number, the acceleration of pricing here bodes well for their performance over time.

If reinsurance rates fail to keep up with this acceleration, while retrocession on the other end also remains firmer, the “U” shape of the market will eventually drive more ILS strategies to seek out access to primary insurance risks, with catastrophe exposed property likely the target.

It is interesting to consider how any prolonged firming of commercial insurance rates around the globe might influence ILS sector strategy over time.

Could we see ILS funds looking to access large, cat exposed property insurance risks in other regions than the United States in time?

If rates continue to accelerate in regions such as Europe, the UK, Asia and Latin America, might it even become conducive as an ILS fund to partner up with managing general agencies (MGA’s) in those regions to access risk and provide a shorter market-chain back to reinsurance capital?

It’s a strategy that has only really been viable in the U.S. so far, but if rate increases persist it may become viable more broadly around the world in time as well, offering a new opportunity for alternative reinsurance capital to support pools of primary risk originated directly out of other regions around the globe.

Of course, even if that doesn’t become a viable opportunity, the persistent firming of commercial insurance pricing around the world can only help to ensure that reinsurance and retro rates stay firmer too, as price hikes flow along the market-chain, to the benefit of all capacity providers.

Finally, it’s also notable that rate acceleration continued into January 2020, as commercial property rates rose faster than the prior month according to IVANS, as our sister publication Reinsurance News reported earlier today here.

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