Commercial property rates still firming, but evidence of deceleration grows

Insurance and reinsurance broker Willis Towers Watson (WTW) reported this week that US commercial property insurance prices continued to rise in the first-quarter of the year, but said that the rate of change has “moderated fairly significantly.”

“Data for nearly all lines indicated significant price increases in the first quarter; however, the increases were lower than those reported in each of the previous three quarters,” the broker explained.

Within the commercial insurance space, property lines have seen near or at double-digit firming in the first-quarter of 2021, with larger, the more catastrophe exposed and more specialised accounts continuing to be the main driver.

Property coverage accelerated again, WTW said, seeeing near or above double digit increases for the eighth consecutive quarter.

“The rate of price increases has moderated fairly significantly, all while still being elevated versus historical norms. This is evident by the absolute value of the movement from the fourth quarter of last year to now, which is one of the biggest one-quarter movements we’ve seen in survey history,” explained Yi Jing, director, Insurance Consulting and Technology, Willis Towers Watson.

So some evidence of softening, or at least the deceleration of rate increases in the latest update from WTW’s CLIPS.

The softening becomes clearer in month by month data and IVANS reported its results for May 2021 this week, so a little more up to date and noted a softening trend continuing, with the deceleration of rates in commercial property insurance now seeimgly persisting.

IVANS reported that commercial property insurance rate increases decelerated from 6.13% for February, to 5.69% for March, down again to 5.52% for April 2021.

Now, for May 2021, the average commercial property rate increase has slowed further to 5.43%, IVANS explained.

So that is now three consecutive months of rate deceleration in commercial property insurance in the United States, according to IVANS data.

“This month’s IVANS Index demonstrates that Commercial Property rates continue to remain high while Workers’ Compensation premium renewal rates trend up, notably closer to flat compared to year’s prior,” explained Kathy Hrach, vice president of Product Management, IVANS Insurance Services. “While month-over-month trends experienced a little softening in the market relative to last year, the market remains firm with expected increases in rates during renewals.”

Catastrophe exposed US property insurance is the segment of commercial lines business of greatest relevance to the insurance-linked securities (ILS) market and other alternative reinsurance carriers.

As we’ve explained before, the last quarter of 2020 saw property insurance rates surging in catastrophe exposed zones, led by hurricane exposed property in Florida and wildfire exposed property in California.

The pace of increases continued in Q1 2021, with “catastrophe prone areas hammered with large increases” according to MarketScout’s data.

There now appears to be some deceleration across commercial property business as an average, but it’s not yet clear whether this softer environment is also being seen in the catastrophe exposed zones.

It would seem likely that coastal wind-exposed accounts, especially large accounts, plus wildfire exposed may continue to see hardening for some time to come, but perhaps the rate of increase could drop and this could also be exacerbated by capital in the reinsurance market and freshly raised start-up capital having a dampening effect on rates going forwards.

However, the main issue for ILS and reinsurance market participants is that rates continue to make progress towards better covering loss costs, which at this stage appears the likely outcome at least through the remainder of this year for the most catastrophe exposed property business.

As that will help to underpin property catastrophe reinsurance rates, which may supply an additional buffer to hold back any wholesale return to a softening market (at least for the near-term).