Commercial U.S. P&C insurance pricing turned negative in Q4 2014

Analysts predicted that the commercial U.S. property and casualty (P&C) insurance market would turn soft in 2015, but a recent report reveals that on average across small, medium and large accounts, rates already turned negative in the fourth-quarter of 2014.

According to the Council of Insurance Agents & Brokers’ (CIAB) most recent quarterly ‘Commercial P&C Market Index Survey,’ average commercial P&C rates for U.S. firms came in at -0.7% in Q4 2014.

The CIAB study shows that large accounts witnessed the most dramatic pricing decline at -2.2%, while medium-sized accounts dipped -0.9%, and small accounts stayed in line with the third quarter, at 1.1%.

Artemis reported earlier this month that MarketScout predicted rates to turn soft sometime in 2015 following the rate deceleration witnessed throughout last year, however its Q4 commercial insurance barometer is yet to be published.

At the time, MarketScout’s Chief Executive Officer (CEO), Richard Kerr warned, “we are on the cusp of a soft market.” But from the latest findings by the CIAB it’s apparent that the market looks to be softening at a faster rate than some might have expected.

President and CEO of the CIAB, Ken Crerar commented; “Changes weren’t particularly dramatic last quarter and capacity remained ample for good accounts and new business, very similar to what we saw in the previous quarter.”

Despite Crerar’s comments that rate changes weren’t dramatic, they were clearly significant enough to result in an average rate return decrease of 0.7%, ultimately leading to a negative U.S. commercial P&C market.

In the report, brokers from all corners of the states cited increased competition as a key factor for keeping rates down, a broker from the Northeast described the market as having “fierce competition.”

The heightened competition among re/insurers, with excess levels of capital held by traditional reinsurance firms and the consistent influx of alternative reinsurance capital, is clearly pressuring the commercial P&C insurance market.

The influence of high levels of reinsurance capital, both traditional and alternative, continues to broaden, filtering into the wider insurance markets and adding greater pressures on U.S. commercial P&C rates, resulting in this negative market. As reinsurers increasingly look to allocate capacity to insurance risks, in order to avoid the softened reinsurance market pricing, the effect may be exacerbated in commercial P&C lines which could accelerate the softening trend.

CIAB’s survey notes a general rise in commercial insurance demand in the fourth quarter of 2014, aided by a greater demand for cyber risk protection.

Brokers spoke of carriers continued aggressive approach on new business as seen in previous quarters, a Midwest broker noted that they were, “Generally more aggressive on new business and renewals with a clean loss history.”

As the market continues to soften it’s still unclear when it will actually be deemed soft, Kerr of MarketScout highlighted this point, stating; “The next soft market will start as soon as a composite rate decrease is measured. We expect the beginning of the next soft market cycle to be in early 2015.”

Also read:

– Flat commercial U.S. P&C insurance rates signal 2015 soft market.

– Commercial P&C insurance rate deceleration expected to continue.

– Commercial P&C insurance rate increases slowing, may turn negative.

– Commercial P&C insurance pricing slides, led by commercial property.

This situation was forecast by a number of parties, including broker Willis Group which said as long ago as 2013 that new & alternative capital would pressure commercial insurance rates in 2014.