U.S. commercial property rates respond to catastrophes, but only slightly

Share

Commercial property insurance rates in the U.S. began to respond to the catastrophe loss events of 2017 in the fourth-quarter of the year, according to Willis Towers Watson, but with rates only seen to increase by single-digits it’s likely this was a worse response than had been hoped for.

Insurance and reinsurance brokerage and advisory Willis Towers Watson (WTW) explains in the results of its latest Commercial Lines Insurance Pricing Survey (CLIPS) that overall, commercial insurance rates rose by less than 1% in Q4 2017.

U.S. commercial property rates are the key area of that market which is of interest to alternative reinsurance capital and ILS fund managers, with a number of ventures now sourcing commercial E&S property risks more directly for ILS ventures.

WTW says that its survey shows that commercial property insurance prices, which had been showing decreases for much of the recent past, now indicate increases in the low single digits for the fourth-quarter of 2017.

This is likely lower than many underwriters would have hoped for, however the rate movements are not broken out into loss-affected accounts versus those loss-free. It’s likely that loss-affected commercial property rates will have risen much more than those unaffected.

“Last year’s weather disasters were some of the most financially disruptive in history, and the survey results indicate we’re likely now seeing the initial response to the catastrophes on the pricing side of the property market,” commented Pierre Laurin, Americas Property & Casualty (P&C) sales and practice leader for Insurance Consulting and Technology, Willis Towers Watson.

Overall though, the less than 1% commercial insurance rate increase in Q4 was the 10th consecutive quarter where rate increases fell below 1% across the market, according to WTW’s survey data.

At the same time, WTW reports that insurers say that claims cost inflation for 2017 came in at 1% for the year, so higher than the rate increases achieved suggesting that profitability of the business has declined or is at best flat for the diversified commercial insurers.

Recently Willis Towers Watson said that abundant capital was muting property insurance market firming in the United States and it is likely that the same excess of capital targeting these commercial property lines is the reason rates have not increased as sharply as many would have liked.

However, for the ILS funds looking to move up the value-chain to get closer to sources of catastrophe exposed property underwriting business, the fact rates have risen will make this business even more attractive, as it already helps them to increase margins on business that would otherwise only have been sourced via the reinsurance cycle, one further step down the chain.

As alternative capital and ILS funds continue to grow their share of commercial property insurance market risks, while big re/insurers seek to grow their market shares too, the likelihood is that rates won’t respond by as much as hoped for, reflecting the experience seen in the reinsurance market.

Especially as insurance and reinsurance firms look set to endure continuing compression of their underwriting margins, meaning that the catastrophe exposed commercial property line will likely find the capital markets taking a growing market share over the years to come.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.

Read previous post:
Winter weather to drive re/insurance losses across EU and U.S. – Aon

Severe winter weather and extreme cold are set to drive minimally hundreds of millions of dollars of insurance and reinsurance...

Close