While the primary insurance market can sometimes be considered to be removed from the competitive pressures of reinsurance, there are continuing signs that larger commercial lines and property risks are affected by excess traditional capital and the expansion of ILS markets.
In the first-quarter of 2017 MarketScout reports that its composite barometer of commercial insurance prices actually rose by 1%, but looking at the data it is clear that the large account and property side of the market remains under pressure.
These are the areas of the commercial insurance market where major global reinsurance firms are increasingly deploying capacity, as they seek to get closer to the source of the risk and provide tailored solutions directly to global corporate clients.
At the same time, the commercial property and short-tailed sector is a growing target of insurance-linked securities (ILS) funds, with ILS capacity now channeled more directly to these risk classes through broker and MGA fronting relationships.
Alternative reinsurance capital is particularly attracted to commercial property type risks, and a number of ILS funds target this via fronting arrangements, excess & surplus initiatives and other partnerships. This segment of the commercial insurance market saw rates down by 1% in Q1 2017 according to MarketScout.
At the same time the large account segment of commercial insurance is the target of traditional reinsurance capital that is often being displaced by ILS capital in its traditional market heartland, resulting in a 1% rate decline for accounts above $250k and 2% decline for accounts above $1 million.
Rate declines were also seen in inland marine and workers’ compensation, both areas the traditional reinsurers also might be seen to play.
It does seem that both traditional reinsurance and alternative or ILS capital are having an effect on commercial insurance pricing, at least in these specific areas of property risks and the very large accounts, which they are known to target.