US commercial property insurance rates decelerate in Q4: Marsh

Robust commercial property insurance price rises continued around the globe, but broking giant Marsh has warned that the fourth-quarter of 2020 saw the US property insurance market begin to decelerate, with signs that pricing may be starting to plateau.

Catastrophe exposed and loss impacted property insurance accounts continued to see some of the largest rate increases around the world, as carriers make renewals more challenging for clients in these areas and make clear their demands for risk commensurate rates.

Across the market, global commercial insurance prices increased 22% in the fourth quarter of 2020, the highest quarterly increases since Marsh’s index was launched in 2012.

Despite this overall strong performance, Marsh noted that, “The index shows that price increases may be starting to plateau for some lines of insurance in certain geographies.”

Among these are US property insurance, where Marsh cites “signs of moderating increases” as the quarterly rise was much lower than other recent quarters.

In fact, property insurance pricing decelerated globally, with the index coming in at 20% for Q4 2020, down from the 21% rate increases seen globally in Q3.

In the US, Marsh notes that there are signs of rates reaching a plateau across commercial insurance, which may simply be a function of the US being the location where rate acceleration has been strongest and seen perhaps for the longest so far.

US property insurance pricing has now increased for 13 consecutive quarters. But the increase in Q4 was the lowest for a year.

In the US property insurance market, Marsh expects that the average rate of increase will drop in 2021, signalling continued deceleration perhaps, but the broker does expect difficult renewals will continue for some, suggesting firming will persist.

That bodes well for property and in particular catastrophe exposed reinsurance, as even with capital increasing in the reinsurance market there will be a desire to keep rates on the firming side if primary lines continue to move in that direction.

For those reinsurance and insurance-linked securities (ILS) players that write quota share proportional reinsurance business, the continued firming of primary property insurance rates will flow through into better performing quota shares, it should be expected.

In the UK, the property insurance market remained challenging, Marsh said, with pricing increases consistent with those observed in the third quarter.

In Latin America there was also further property insurance rate acceleration, with increases above 15% in several countries, including Chile, Colombia, and Mexico.

In Continental Europe there was a slight deceleration on prior quarters, but still property insurance rates were up, in particular for large, complex multinational clients who generally experienced increases greater than 25% to 30%.

Also of note in Europe, Marsh said that “pricing pressure and capacity limits continued to drive the use of traditional wholesale markets (London and Zurich) and the demand for alternative structures.”

In the Pacific region pricing continued to soar, especially in Australia where rates are still rising after 2020’s catastrophe losses.

While, in Asia there was a little deceleration, but still increases being widely seen and those with catastrophe exposed property saw double-digit increases still.

Property insurance does remain one of the key drivers of global insurance rates though, suggesting property reinsurance should follow suit for a time at least.

The one wild-card here is if global reinsurance capital, in particular from the capital markets, begins to look towards the front of the market origination chain and target primary property exposures more meaningfully, as this could quickly bring in broader deceleration of property insurance rates around the world.

Lucy Clarke, President, Marsh JLT Specialty and Marsh Global Placement, commented on Q4 2020 insurance rates, “The global insurance marketplace was very challenging in 2020, and we expect these conditions to persist through the first half of 2021. Although we are seeing signs that price increases are beginning to plateau in some lines, our clients continue to face tough trading conditions. We are committed to presenting all risk mitigation and insurance placement options to our clients and to offer advice and support as they consider adjusting their insurance buying patterns.”