Wells Fargo has added its outlook to the growing consensus that the insurance industry is headed into a prolonged soft market period. In its “2015 Insurance Market Outlook,” the company notes that the improving economy and available capital have positioned the commercial property/casualty market for stable and profitable conditions throughout the year, in spite of falling prices.
“Despite rate reductions—forecast to be in the high single to low double digits—the market should see sustained underwriting profitability and attract new capital as a result of GDP growth and rising interest rates,” said Kevin Brogan, head of the Property and Casualty National Practice at Wells Fargo Insurance.
Overall, Wells Fargo projects property/catastrophe rates to fall 10% to 20%, while workers’ comp is expected to decrease 5% to 10% by the middle of the year.
Even the beleaguered aviation sector, which saw record losses in 2014, should stay relatively stable, says Wells Fargo. Thanks to overcapacity in aviation, the insurer expects premiums will remain low, despite underwriters’ hopes.
Only airlines and war risk received an anticipated pricing increase, of between 5% and 20%.
“With an annual premium pool estimated at $65 million in the war hull market in 2014 and losses estimated at more than $650 million for the year, rates were increasing in the 200% to 300% range—until new capacity entered the market in the fourth quarter,” the report said. “Increases became more subdued since then and are expected to continue into 2015.
A few notable outliers include workers’ comp pricing in New York, California and other states with high payrolls. Wells Fargo notes that pricing volatility will continue to affect insurers in these areas due to increasing medical and indemnity costs.
Private/non-profit management liability is also expected to remain fairly flat as carriers continue to be cautious with coverage enhancements. Elevated claims frequency and new liabilities emerging with increased security breaches merger and acquisition activity have made underwriters cautious.
Wage and hour claims are also expected to increase, affecting the EPL insurance line.
“Clients with a strong risk profile might expect a flat rate renewal (with premium adjusted for exposure changes) and strong competition in the marketplace,” Wells Fargo said. “Accounts with challenging risk profiles will see limited interest from alternate markets and premium increases from incumbents.”
