Widespread Market Firming Unlikely Even as Property Rates Rise: WTW

February 15, 2018

Commercial property insurers are seeking double-digit rate hikes on catastrophe-exposed insurance programs following 2017’s record catastrophes; however, abundant capacity in the form of traditional and alternative capital is likely to depress widespread market firming, according to global advisor Willis Towers Watson in its Property Market Update.

Organizations with catastrophe-exposed properties that have suffered losses are facing the steepest rate hikes, between 20 percent and 25 percent, while catastrophe-exposed programs without losses are likely to see price increases of 10 percent to 20 percent. Meanwhile non-catastrophe-exposed programs can expect renewal pricing to be flat to +5 percent.

According to the report, 2017’s global natural catastrophes have resulted in estimated insured losses of $143 billion thus far, topping the previous record of $120 billion in 2011. However, the report points to strong reinsurance market industry capitalization and the continued appetite by alternative capital providers as helping the industry absorb recent losses without major balance sheet impairment. This scenario is also “dampening the ability of underwriters to attain significant rate uplift and will diminish the likelihood of a sustained marketplace firming,” the report said.

The report notes that while buyers may not be facing rate increases as steep as initially feared, they still face challenges. For example, property rate increases are expected to vary significantly from the mean, and pricing will depend on an organization’s specific exposure, loss history and occupancy. Organizations approaching insurance program renewals may have to aggressively market their insurance programs and may have to displace incumbent insurers to attain the best rates and conditions.

“Make no mistake, the marketplace is still in a state of some flux and should not be considered easy. While the rate increases that we’ve seen and that we predict are modest compared to some initial doomsday scenarios, they are still challenging for buyers,” the authors state. “Moreover, there is some bleeding of the market-firming into other lines of insurance, which will also challenge buyers. That said, we do not see property rate increases escalating beyond our forecasts, and we think the duration of the current conditions will likely be limited to a few quarters.”

Key price predictions

Property
Non-cat-exposed risks: Flat to +5%
Cat-exposed risks: +10% to +20%
Cat-exposed with losses: +20% to +25%

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