Expect P/C Insurance Price Stagnation in 2016: Kroll

December 30, 2015

After a banner 2015 for the U.S. property/casualty insurance sector, pricing pressures will lead to stagnation or rate declines in 2016, Kroll Bond Rating Agency Inc. predicted.

Pricing will either be flat or down over the next 12 to 18 months, with the biggest pressure in commercial lines, property and reinsurance, Kroll said in its U.S. Property/Casualty Insurers 2016 outlook.

According to Kroll’s expectations, commercial lines rates will dip in the low- to mid-single digits, but property lines and reinsurance rates could decline by more than 10 percent in response to continued favorable experience and a lack of major weather events (going back to 2012 now).

Kroll said that rate changes started trending downward in the 2014 second half, with an acceleration of rate decreases in 2015.

The downward pressure on rates comes from a number of factors, including low catastrophe losses and depressed investment income. Kroll said that catastrophe losses over the last three years landed well below the 10-, 20- and 25-year averages, even though winter storm losses were higher than average.

According to Kroll, the lack of major wind events also pressured rates and could have led to complacency regarding catastrophe exposure and overall risk management with some underwriters, which the agency warns could have implications.

“Although not an earnings or capital issue, there is a potential coverage issue and increased claims activity with earthquake claims, especially as it relates to fracking and wastewater disposal wells,” Kroll said. The ratings entity noted that there have been more earthquakes in fracking-related states such as Oklahoma, where regulators and consumer groups are “looking to create more transparency with coverage and policy language.”

Not every property/casualty line is facing pricing declines, however. Kroll noted that personal lines auto is one of the few lines that saw “notable increases” with a number of “market leaders” in 2015, adding that the trend should continue in 2016, “with many of the other carriers following their lead.”

Still, even as claims frequency in personal lines auto has trended up in recent years, Kroll said that frequency should trend downward in the years to come due to automobile safety features.

Another line that has seen premium and rate increases is cyber liability coverage. Kroll argued that as this line continues to evolve, pricing, while inconsistent, is “expected to increase significantly until loss patterns emerge for specific coverages and forms.” With this in mind, Kroll said it expects errors and omissions (E&O) and directors and officers (D&O) rates tied to cyber insurance to experience rate increases.

While Kroll made its predictions for 2016, it also noted that 2015 will likely be another profitable year for the property/casualty insurance sector.

“Dampened by record tornado losses in 2011 and Superstorm Sandy in 2012, industry results have been more favorable for the third consecutive year,” Kroll wrote in its report. Even with continued depressed investment income and price softening, Kroll said that favorable earnings will place the industry surplus at or near its all-time high heading into 2016.

Source: Kroll Bond Rating Agency

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Latest Comments

  • December 30, 2015 at 2:48 pm
    Dave says:
    So the soft market continues? Nothing to see here folks. Just move along.
  • December 30, 2015 at 2:28 pm
    Agent says:
    How could we have lesser wind events as a factor when our Climate Change friends say everything is worse? Everyone knows that Global Warming and Climate Change is our most se... read more
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