Research

Insurance Marketplace Realities: Property

2018 Spring Update on Commercial Insurance in North America

April 12, 2018

Price prediction

  Trend Range
Non-cat exposed: No change or slightly up/down –5% to +5%
Cat exposed: Up +5% to +15%
Cat exposed with losses: Up +15% to +20%

Key takeaway

Have a plan, document your story and know what you are prepared to trade off to secure best terms and diminish — or reverse — potential rate increases.

Price increases are moderating in 2018.

The shape of the global reinsurance market in 2017-18 is significantly different from prior catastrophe years, limiting upward price pressure on insurers and hence on insurance buyers.

  • Despite initial expectations of dramatic reinsurance rate increases, January 1 treaty renewals came in at average increase of 5%–7%. Even so, there was significant upside deviation for cat-driven treaties with heavy Caribbean and southeast U.S. exposures.
  • Despite record losses, reinsurance industry capitalization wound up slightly higher year over year, as traditional reinsurers remain strongly regulated and capitalized. Therefore, while underwriters feel compelled to increase profitability, continued oversupply of capital will inevitably militate against this desire.
  • While the recent losses are clearly a severe earnings event, the impact on capital has been relatively muted.

Alternative capital remains undaunted, another factor working toward the advantage of insureds.

  • Alternative capital providers in the form of insurance-linked securities (ILS) showed resilience in the face of their first major loss test and have even exhibited a growing appetite for risk taking and increased market share.
  • The abundance and undiminished amount of conventional capital and the continued appetite of alternative capital will dampen the ability of underwriters to attain significant rate uplift and will diminish the likelihood of a sustained marketplace firming.
  • Although 2017 hasn’t turned out to be the Armageddon year that would severely dent (re)insurers’ balance sheets and lead to an immediate, drastic and prolonged firming in rates, it has provided an impetus for carriers to reappraise underwriting fundamentals and rate adequacy, in addition to seeking a path to sustainable profitability.

Forecast rate increases have moderated significantly since our November report, and some buyers will be able to contain increases to a relatively modest level. For underwriters, a one-size-fits-all approach to rate increases is all but abandoned.

  • For buyers approaching renewals, aggressive marketing may be rewarded, although that could involve displacing incumbent insurers:
    • Get an early start on your renewal.
    • Create a submission with distinguishing data and narrative to set your risk apart from peers.
    • If possible, meet with current and prospective underwriters face to face.
    • Understand that insurers’ decision-making processes will take longer than in recent years.
  • Underwriter pushback on policy wording (particularly manuscripts) has not been drastic — although there is lingering vigor in pushing back on “non-physical” damage wordings and limits, as well as a desire to increase percentage deductibles and caps for cat exposures that have softened over recent years.
  • The reaction to 2017 losses by the global property marketplace has varied by region:
    • The U.S. and Bermuda markets have generally been very pragmatic, and both have picked up some early market share from London.
    • London markets took a broad-brush approach to rate increases in the early days post-storm. They have since pivoted and have become more targeted in their underwriting and pricing.
    • True to its nature and history, London has been more sensible in underwriting and rating accounts with difficult occupancies and troubled loss histories than domestics and Bermuda.