Magazine article Risk Management

STEADY SUPPLY: Low Prices and Abundant Capacity Define the 2017 P/C Insurance Market

Magazine article Risk Management

STEADY SUPPLY: Low Prices and Abundant Capacity Define the 2017 P/C Insurance Market

Article excerpt

Risk managers can look forward to yet another year of competitive pricing among insurers, creating a favorable market with declining premium rates, as an abundant supply of capacity favors buyers. But while most lines have remained flat or are decreasing, cyber and auto continue to see increases.

According to Fitch Ratings, the outlook for property/casualty insurers in the United States is stable and not likely to change in the next 12 months. "The industry is as competitive as it's ever been," said James Auden, managing director of property/casualty insurance at Fitch Ratings. "From a profit perspective, going forward is a continuation of a trend we've seen over the past two years- pricing has been declining. It's been 2014 pricing in most commercial lines."

From 2013 to 2015, Auden noted, catastrophe losses were less severe. While there were catastrophes in 2016, including flooding in Louisiana, hailstorms in several states and Hurricane Matthew along the East Coast, 2016 was more of a normal year for insured losses from catastrophes, relative to historical norms, he said.

Further contributing to the relatively positive environment for insurance buyers, capital is still strong in the insurance industry. As a result, buyers have more choices in carriers, resulting in more competitive pricing and more creativity when putting policies together. "The same goes for the reinsurance market- there is plenty of reinsurance capacity," Auden said.

In its 2017 outlook, in fact, Guy Carpenter noted that the reinsurance sector's continued abundance of capital has led to a focus on attractive price points, product innovation and customized coverage. Heightened competition, however, presents other issues. "The 2017 (re)insurance market will be challenged to offer solutions that utilize increasing amounts of capital effectively in a complex landscape, requiring insurers to be increasingly diligent and responsive to prepare for the uncertainty ahead," said David Priebe, vice chairman of Guy Carpenter and head of GC Securities.


Capacity has remained abundant despite a wave of insurer consolidations, including the merger of Chubb and ACE, Liberty Mutual's purchase of Ironshore and Sompo's purchase of Endurance. Even with fewer insurers left for buyers to choose from, J.D. Power and Associates noted in its 2016 Large Commercial Insurance Study that risk professionals "will have more leverage to negotiate for placement of additional risk and for different options when placing risk."

In its outlook, investment firm Keefe, Bruyette & Woods (KBW) noted that it expects significant insurance and reinsurance consolidations this year as well-a result of declining P/C rates and underwriting profits. "Expense cuts and increased competitiveness associated with already-announced deals and underwriter recruitment efforts will probably motivate more deal-making to expand product portfolios and lower expenses and capital costs," the company said.

In its Marketplace Realities 2017 report, Willis Towers Watson observed that M&As have had a major impact on rates and predicted that property rates will continue to drop. The company urged buyers to "keep taking advantage of what we have seen for the last few years: a buyer's market with no end in sight." While some property rates have bottomed out, the report noted, others still have further to go. It predicts decreases in 10 lines including property, aviation and directors & officers; increases in six lines including auto, cyber and employee benefits; and a mix of small increases and decreases in seven lines, including casualty, construction and workers compensation.


One commercial lines segment that remains troublesome for insurers is commercial auto, where capacity is scarce and rates are steadily growing. According to Willis Towers Watson, auto rates are predicted to rise 3% to 10%. For trucking risks, excess auto buffer layers-attachments in excess of $1 million to $5 million and limits of $5 million to $15 million-continue to be challenging. …

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